Local banks solid through slump: Lenders say money has stayed local

Sep 30, 2008 (The Dominion Post - McClatchy-Tribune Information Services via COMTEX) -- WB | Quote | Chart | News | PowerRating -- Wall Street's problems apparently aren't affecting local West Virginia banks, as officials say they are still making loans and business is brisk.

State banks have been left pretty much untouched by the problems that caused national banks like Wachovia Corp. to be taken over because of losses created by adjustable-rate housing loans, said Doug Leech, president and CEO of Centra Bank.

"We're a local bank in a local market loaning money to local customers, so by definition we're not part of the booming economies seen in other parts of the nation," he said. "We took our funds and loaned them back into the communities, not for example to a Florida housing development."

Clear Mountain Bank President and CEO Brian Thomas said local lending also has not been affected much by recent headlines about a tight money supply.

"You hear in the media that there is a credit crunch, of banks that have stopped or significantly slowed their lending," he said. "I do not see a credit crunch locally. As for our bank, Clear Mountain Bank has money to lend to qualified borrowers. It's business as usual at the bank. Local banks have money to lend. Borrowers, who can demonstrate the ability to repay debt, should have no problem finding banks that will loan them money."

Leech said data recently released from Keefe, Bruyette and Woods, specialists in financial services, places West Virginia banks in the top five safest, most well-capitalized banks in the nation. He said the top five states are Arkansas, West Virginia, Kentucky, Louisiana and Alabama.

"The reason for this is because West Virginia and these other states have not been part of the boom in the national economy," he said. "We're not part of the bust that's taking place in selected markets around the nation."

Thomas cited Bauer Financial reports that said many of area's local banks have high safety ratings that indicate these banks are healthy financially. Bauer Financial is an independent bank rating service that rates banks on a scale of no stars to five stars.

The state may have missed out on potential profits by not going after the riskier loans, but Rich Adams with United Bankshares said customers will look to more responsible banks to do business.

"You might even see some increased lending," said Adams, United's president and chief executive.

McDowell County-based Ameribank failed earlier last month. Thomas said since 1989 three banks in West Virginia failed prior to Ameribank's failure; within the last 50 years, only six banks failed in West Virginia (not including Ameribank).

"That's an average of about one every decade," he said. "Bank failures in West Virginia are rare. Banks overall are very healthy, well capitalized and deposits are safe."

Thomas said the number one concern he has heard in the community is, "are my deposits safe." Deposits are insured by the Federal Deposit Insurance Corporation up to $100,000.

"Local banks in the Morgantown area are very safe," he said. "Deposits are well protected. No depositor that has FDIC insured deposits has ever lost a penny."

Leech said Centra did not invest heavily in Fannie Mae or Freddie Mac preferred stock in investments. Earlier this month, government officials took over struggling mortgage lenders Fannie Mae and Freddie Mac, temporarily putting them in a government conservatorship, replacing their chief executives and taking a financial stake in the mortgage finance companies.

Earnings in 2007 and 2008 have reached record high levels. Centra did not participate in the subprime lending activity that engulfed most of the nation.

Thomas said Clear Mountain Bank also did not engage in subprime mortgage lending activities. Thomas said as a result, the bank's delinquent loans have not risen, but fallen this year. He said the Clear Mountain Bank is profitable and liquid. He said though the bank had a small amount of preferred stock in Freddie Mac, it was immaterial -- one tenth of one percent -- as a percentage of the bank's assets.

"The loss will have no impact on us financially in the least bit," he said.

Despite the calm, West Virginia's banks are being more cautious.

"I can tell you that the lenders are becoming much more cautious with loans that are a little bit riskier," said Judy McCauley, district director for the federal Small Business Administration in West Virginia. "They're more concerned with your ability to pay it back right now."

Thomas said Clear Mountain has endured the Great Depression, world wars, recessions and booms.

"Our many years of experience has taught the bank to have a 'steady as she goes' approach," he said. "The bank sticks to the basics of lending. If you follow the well proven and time tested basics of lending, your bank will be stable and strong.

On Monday, the House of Representatives rejected, by a vote of 228 to 205, the $700 billion measure to bailout Wall Street.

Leech said Centra bank was contacted by Rep. Alan Mollohan, DW.Va., and Rep. Shelley Moore Capito, R-W.Va.

"Their purpose was to gain insight and understanding of the implications of this legislation and how the various constituencies within West Virginia might be affected," he said. "My recommendation to them was that strong performing well capitalized banks such as we have in West Virginia don't get punished by legislation while the large national banks that are troubled due to their past investment decisions get rewarded by a potential bailout. This legislation should not punish the banks that have operated with a high level of prudence and conservatism in their investment decisions, such as West Virginia banks."

Leech said Congress should do something before the crisis affects Main Street.

"We're in an industry where we are interested in watching what's taking place on a national level," he said. "We believe it is important for Congress to pass some form of legislation to re-establish confidence in the national financial markets. We were supporters of the legislation, not as it would benefit Wall Street directly, but more important as it trickled down to Main Street. We believe that eventually, the credit crunch will hit Main Street if not addressed."

Joe Lemine, vice president of investments at Wachovia Securities/A.G. Edwards, said the credit crisis is relatively widespread, as shown by the failure of large institutions and nationalization of other financial companies. Like many other investment professionals, he has been watching the legislative process.

"Although we as taxpayers may find the rescue plan distasteful, it appears to me that some action is needed to unlock the credit mechanism. As far as West Virginians go, I don't think the credit crunch will have a large effect here other than lower stock prices. In general our banks are well capitalized and well managed."

Thomas has paid close attention to the situation Congress is facing.

"I was a little surprised that it [the legislation] failed," he said "I thought that it had broader support after listening to news reports over the weekend. The negative thing I saw about them not being able to reach an agreement is that financial markets became more volatile."

The stock market dropped to historic lows Monday. Lemine said his advice is to maintain a well diversified investment portfolio and be ready to invest as opportunities present themselves. In the short term, there will be considerable volatility in the stock market, but this is what presents attractive long term opportunities. Lemine is optimistic that financial conditions will improve. "This too shall pass," he said. WesBanco representatives could not be reached at the end of the business day for comment. Edward Jones investments did not respond in time for this report.

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