As Recovery Boosts Big Banks, Smaller Lenders Are Still Struggling
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By ROBIN SIDEL / WSJ / Sept 9, 2010
While large banks are showing signs of recovering from the financial crisis, many of the country's small banks are still in big trouble.
Small banks' efforts to clean up portfolios stuffed with bad loans are forcing them to sell branches, tap investors for fresh capital and restrict lending.
Maryland's 1st Mariner Bank has been marked as out of compliance with Nasdaq rules. It is one among many small banks facing challenges.
Some have fallen out of compliance with stock-exchange requirements, and others have gotten delisted altogether as a result of their woes. Scores have missed dividend payments owed to the government, which has injected billions of dollars into the banking industry through the Troubled Asset Relief Program.
"I think we have a very bifurcated industry. There are the haves, the have-nots and the walking wounded," said Dory Wiley, president and chief executive of Dallas-based Commerce Street Capital LLC, a firm that invests in banks and also advises them.
BankAtlantic Bancorp is one of the latest institutions to announce plans to raise fresh capital, filing a prospectus with the Securities and Exchange Commission on Friday to sell as much as $125 million of stock. The bank, based in Fort Lauderdale, Fla., has about 100 branches, and it will sell 19 branches in Tampa. It recently cut 7% of its work force.
The community-banking industry's troubles were evident in the Federal Deposit Insurance Corp.'s latest quarterly report, issued last week. The FDIC said the pace of declines in loan charge-offs is slower at community banks than at banks that have more than $1 billion in assets. Smaller banks also released fewer reserves in the second quarter than did large banks, meaning they still think they need to keep extra money stashed away to cover loans that go sour. The amount of loan balances that are 90 days past due rose 0.3% at community banks, while the larger banks reported a 5.3% decline.
Though the big banks wield the most power among consumer and business customers, community institutions represent most of the nation's 7,830 banks. Last year, 91% of all banks had assets of less than $1 billion, and 36% had assets of less than $100 million, according to the FDIC.
Such banks represent the bulk of the 829 institutions that are on the FDIC's "problem" list. They also make up the majority of the 118 banks that have failed so far this year.
Unlike the behemoth banks that pitch credit cards, trade securities for clients and provide merger advice, small-town banks are still largely in the basic business of collecting deposits and making loans, including mortgages. Faced with slow growth and competition from big banks that have sprawling automated-teller-machine networks and sophisticated cash-management products for business customers, many of these small banks pumped earnings in recent years by expanding into new regions and loading up on loans to commercial-real-estate developers. Such growth has come back to haunt many of them now.
"Community banks increased their risk profile and credit exposure significantly and are now really reeling from that," said Michael Alley, chief executive of Integra Bank Corp., a community bank based in Evansville, Ind., that has more than 50 branches.
Though larger than many community banks, Integra is under orders from regulators to raise capital, and it is selling some branches. The bank recently was notified by the Nasdaq Stock Market that it is out of compliance because its stock price has been less than $1 a share for 30 consecutive days. The shares have been trading at about 72 cents this week.
Off the Market
Banks that have lost their listings in 2010, and reasons.
Jan. 21: Horizon Financial Corp.—Bankruptcy/liquidation
Feb. 3: Columbia Bancorp—Bankruptcy/liquidation
Feb. 10: First Regional Bancorp—Bankruptcy/liquidation
March 11: Rainier Pacific Financial Group Inc.—Bankruptcy/liquidation
April 21: Beach First National Bancshares Inc.—Delinquent/bankruptcy/liquidation
April 28: City Bank—Bankruptcy/liquidation/delinquent/bid price
April 28: Tamalpais Bancorp—Bankruptcy/liquidation
May 5: Amcore Financial Inc.—Bankruptcy/liquidation
May 12: Frontier Financial Corp.—Bankruptcy/liquidation
May 12: EuroBancshares Inc.—Bankruptcy/liquidation
May 26: Midwest Banc Holdings Inc.—Bankruptcy/liquidation/equity/delinquent
June 11: Bank of Florida Corp.—Bankruptcy/liquidation
July 1: Cowlitz Bancorp—Equity/public float
July 8: First National Bancshares Inc. (S.C.)—Bid price
July 28: First State Bancorp—Bid price
July 23: Independence Federal Savings Bank—Market value of publicly held shares
May 21: Pacific State Bancorp (Calif.)—Bid price
Banks that are under pressure to raise capital are finding themselves in a difficult spot because investors are increasingly skeptical about the future of some of these institutions.
"Investors need to know that there's enough capital for a healthy institution to emerge after the capital raise," says Jeff Evans, director of global capital markets at Keefe, Bruyette & Woods Inc., an investment bank that specializes in financial institutions
PAB Bankshares Inc., a community bank based in Valdosta, Ga., lost $21 million in the second quarter, added $15 million to its loan-loss reserve and is trying to clean up problem assets on its balance sheet, it has said. Two days after the bank released its quarterly results last month, it canceled plans to raise $80 million, citing "changing market conditions."
Representatives of the bank didn't respond to requests for comment. When it canceled the capital-raising plan, the bank said it was analyzing other options to raise capital and liquidate nonperforming assets.
More than 90 financial institutions, most of them community banks, missed May dividend payments on preferred stock they received under the Treasury Department's TARP program, according to SNL Financial LC, a research firm in Charlottesville, Va.
That number could grow later this month when the Treasury releases a list of banks that missed August payments. One new name that will be added is Community Bankers Trust Corp., based in Glen Allen, Va. The firm, which is the holding company for the 25-branch Essex Bank, lost $20 million in the second quarter and reported an increase in nonperforming loans.
"Capital is king right now. There is a lot of stress on all of us right now in the community-banking industry," said Bruce Thomas, chief financial officer of Community Bankers Trust. |
