Q: Local banks are turning record profits and offering dividends. Even regional banks that were troubled are now showing sustained quarterly profits. Has the banking industry recovered?
A: Some parts of the country are coming out of it better than others. Georgia is slower, just because we went so much deeper in the hole. We are seeing banks beginning to recover. We are seeing banks earn their way out of their problems, having enough core earnings to put it toward asset quality and purge their system of the bad.
Q: Are we going to see really good bank profits in the next year?
A: You will see profits improve, but a lot of it will be coming out of lower credit expenses – being the loan-loss reserves and charge-offs. What we’re struggling with is core earnings. All the Dodd-Frank (Wall Street Reform and Consumer Protection Act) implementation is costing us more to do our business, more expenses put toward compliance instead of banking. But for the next year, we will certainly see better earnings as the loss expenses go down.
The banks that have had the core earnings to deal with it had those resources to deal (with bad loans). Unfortunately, Georgia has still got a good handful that don’t. But there are no new banks in that equation. The ones that were struggling are just continuing to do that.
Q: How did they survive?
A: I will tell you that the banks that survived had good capital. Some of them had to go out and raise capital. But their portfolio was not as risk-weighted as some of these other banks were. They were more diversified in the types of loans. The banks that really got into trouble were in construction and development and speculative real estate. They were turning quick and making good money on them, but they had such a concentration in them that when the market turned, they had nowhere to go. Banks that were diversified could shift and earn their way out of those problems.
Q: How is lending now for projects? Has it started again?
A: As far as construction and development, my bank never got out of it. We stayed in it. We retooled ourselves. The market went down. Last year there were more housing starts in Columbia County than 2005, but the average house price was way down. We were no longer financing the $600,000 to $800,000 house. We were financing the $200,000 to $250,000 house. They were selling, and there was a market for that. The market for the higher-end houses has shrunk. There are great things at Fort Gordon, and other areas are bringing people in. We retooled ourselves to make a product available for that group.
Q: Other than Dodd-Frank, is there anything else affecting banking?
A: The (Consumer Finance Protection Bureau) for sure. They continue to struggle to write legislation for consumer protection, which I believe are well intended. I’ve met (CFPB director) Richard Cordray several times. He is mindful of trying not to hurt the people who are making these loans available for consumers, but he’s charged with the job. He is mindful of the impact on community banks when they come out with these regulations.