The late-August headline from TheStreet.com was the kind that turns business heads: “Eight banks fail in four states.” It was eye-catching because, although trouble in some of the nation’s megabanks helped send the economy into recession, regional and smaller banks have mostly kept plugging along without signs of widespread problems.
Not surprisingly, the bank failures referenced in the headline occurred in states where real estate was particularly vulnerable to an economic downturn. In total, 118 banks have tanked in the U.S. so far in 2010. While that’s not a number to sneeze at, some 8,000 federally insured financial institutions operate around the country. So unless you live in a state that’s led the downward spiral – notably California and Florida (see chart) – bank failures probably haven’t caused a blip on your radar.
That isn’t to say local bankers aren’t attuned to the problems. Louisiana did contribute to the pool of bank failures earlier this year when the Federal Deposit Insurance Corp. closed Statewide Bank of Covington. Lafayette-based Home Bank took over some $200 million in assets from Statewide, whose problems – like those of most other failed institutions – stemmed from unwise real estate lending. Outside of that instance, the Louisiana banking picture has been mixed.
“Most of our institutions continue to perform very well,” says Sid Seymour, chief examiner in the Louisiana Office of Financial Institutions. While he acknowledges a recent uptick in property foreclosures as some borrowers’ financial conditions have become strained, he credits “good bankers and good boards of directors” with maintaining credit standards and generally strong capital levels statewide.
Not on Easy Street
Even strong banks, however, face the challenge of what to do with their money. “Loan demand has been very soft,” Seymour says. “Banks have money to lend, but good-quality borrowers tend to be sitting on the sidelines trying to figure out where things are going.”
Guy Williams, CEO of Gulf Coast Bank and Trust in New Orleans, concurs. He describes business as “reasonably good but not wonderful” as borrowers have become more cautious. “We’re doing a booming mortgage refinancing business because rates are so low,” he says. But business lending has slowed.
Gulf Coast, which is the state’s most active Small Business Administration lender, has seen some demand in key business sectors, however. Williams says hospitality-related businesses, including restaurant startups, are among those shopping for capital, along with fledgling technology companies.
If retrenchment among borrowers is a problem, cautious consumer attitudes have helped build liquidity in many banks.
Anthony Sciortino, chairman and CEO of Statewide-Investors Bank in Metairie, says a lot of people who, a few years ago, were putting money into stocks and other investments, now are parking their cash in short-term certificates or conservative money market accounts. “We picked up a lot of deposits this year,” he says.
Fear of riskier investments helped draw $12 million in new money to Statewide-Investors so far in 2010. “We could be up 10 percent by year end,” Sciortino says.
Stability at the $200 million-asset bank has enabled Statewide Investors to upgrade its headquarters. The bank is finishing out a replacement for the home office it has occupied for the past few decades on Veterans Memorial Boulevard in Metairie. The old office will be demolished once the bank moves into its new three-story building later this year.
New banking offices continue to appear on Harrison Avenue in nearby Lakeview. When First NBC Bank opened the doors of its new branch there on July 1, the bank’s founder and president, Ashton Ryan Jr., couldn’t have been happier.
A former longtime executive at First National Bank of Commerce (an institution also commonly called First NBC before being purchased by Bank One in 1998), Ryan says that after chartering the new bank in 2006, he couldn’t wait to open in Lakeview. “We’ve gotta be on Harrison Avenue,” he told his founding partners.
The new bank’s First NBC moniker was no coincidence. “Even though this was not a successor to the old First National Bank of Commerce, people remember the quality of service we gave them in the past,” Ryan says. By design, many of the new hires at First NBC Bank were people who came from the “old” First NBC.
In addition, he says, “I targeted the markets where we had positive results in the past. We used to have a $120 million-plus brand on Harrison with First National Bank of Commerce. I knew we had to be there.”
That “old” branch, near the corner of Harrison Avenue and Canal Boulevard, today belongs to JPMorganChase, which acquired Bank One in 2004. Just across the street is a renovated branch of Gulf Coast Bank and Trust, whose owners worked at blazing speed to repair the office they first opened there in 2005 just months before the Katrina flood. Nearby, Whitney National Bank is nearing completion of its new branch, which will replace the trailer it has operated from since shortly after Katrina.
Good loans, bad loans
The largest locally based commercial bank at more than $11 billion in assets, Whitney has seen its share of troubles. It was among the institutions that reached into Florida to take advantage of vigorous real estate borrowing there before the economy turned south, taking Florida real estate down with it. Whitney received $300 million through the U.S. Treasury Department’s 2008 capital purchase program, and bank executives say the company is gradually working through its loan problems.
Metairie-based OMNI Bank also has faced loan difficulties in the past few years, owing largely to its activities in the local market. Bank President Kyle Waters says the 22-year-old OMNI is whittling down problems largely generated by the bank’s efforts to bolster New Orleans home sales after Katrina.
“We did a lot of lending to people who wanted to buy one- to four-family houses, fix them up and then sell them or rent them out,” Waters says. But borrowers began to feel financial stress as the national economy soured, and as the slow pace of residents’ return dampened demand for housing.
Waters, who terms the bank’s loan problems “manageable,” says OMNI is refocusing on the basics and returning to its niche market of small business lending. He says borrowers with good credit records who are willing to put a chunk of their own money – at least 20 percent of needed capital – on the line, will likely land a loan. But borrowers hoping to snag a loan while putting 5 percent or less of their own money at risk can forget about it.
“Those days are gone,” Waters says.
Waters and others are keeping their eyes peeled for signs of improvement in the area’s real estate market and in consumer confidence that could help stimulate loan demand. But, depending on their niche, some bankers seem to be finding ample business even now.
“Our loan demand is just awesome,” says Ryan, at the four-year-old First NBC Bank.
Ryan says much of First NBC’s lending is recovery-related, coming from borrowers looking to restore damaged housing and other properties. Tax-credit programs aimed at stimulating investments in the recovery have prompted considerable borrowing, he says.
But Ryan says First NBC Bank also is lending to businesses. “A lot of businesses have been expanding since the storm, and we’ve had good results in working with them.”
So far, local bankers say they have not felt a direct impact from the BP oil well blowout or the subsequent federal moratorium on deep drilling in the Gulf of Mexico. Gulf Coast Bank’s Williams says the most palpable effect has been increased consumer caution.
“When the spill occurred, it was like everything shifted down a gear,” he says. “Hopefully, the moratorium will end soon and things will pick up again.”
Given the importance of the oil and gas industry – particularly the oil services sector – to the local economy, bankers are united in hoping for a quick return to business in the Gulf. Beyond that, and despite complaints about the overall sluggishness of the regional economy, some say that the pace of construction spending in the New Orleans area is keeping local prospects bright.
Ryan, for instance, ticks off some $20 billion worth of local projects slated over a five-year period encompassing levees, schools, streets, sewage and drainage systems, the airport and local military facilities.
“Before Katrina, a good year in construction spending in the metro area might total $1.5 billion,” he says. “We’re going to spend $4 billion a year over five years. I don’t know how you could have a bad economy with that.”