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To: robnhood who wrote (133268)	11/7/2001 12:03:24 PM
From: sun-tzu	Respond to of 436258

must be a bottom

To: robnhood who wrote (133268)	11/7/2001 12:19:59 PM
From: Les H	Read Replies (2) \| Respond to of 436258

Rate cuts hurt smaller banks With low interest onloans, profit marginsare getting thinner By SARAH LUNDAY Federal interest rate cuts are squeezing bank profits and causing many smaller banks to rethink how low they are willing to go on their interest rates for loans. Since the beginning of the year, the Federal Reserve Board has cut interest rates 10 times, pushing down prime rates that are key in determining interest on most commercial loans and credit cards to 5percent from 9percent in January. "Banks are finding out it's harder to make money," said Randy Helton, president and chief executive of American Community Bank in Charlotte. The steep drop narrows the spread of what banks earn on interest from the loans to consumers, compared with what they pay out on deposits such as savings accounts and certificates of deposit. For example, if a bank is making loans at 6percent and paying interest of 4percent on certificates of deposit the net interest margin is a thin 2percent. Small banks take a bigger hit as interest rates drop because they depend on the types of loans that use prime rates. The prime rate, which follows federal interest rate cuts, is used in setting interest rates on commercial loans, credit cards and home equity loans that make up the majority of a small bank's portfolio. Large banks will also feel the pinch in net interest margins, but they are more diversified with profits coming from elsewhere, said John Moore, analyst with Wachovia Securities. "There's no bank that's immune," said Robert Braswell, president and chief executive of Carolina Bank in Greensboro. In response, Braswell and other small-bank presidents are more likely to limit how much lower they will offer interest rates on many home equity and commercial loans than they were a year ago. For instance, 62percent of Carolina Bank's loans are on a variable rate basis that are affected by the prime rate. Not all the loans have bottoms, but those commercial loans that do average a floor of the prime rate plus 1 percentage point. That puts his average at 6percent, and Braswell is hoping not to go below that. "When these interest rates go down and the banks aren't reducing their rates, they're not doing it because their trying to be unfair to their customers," Braswell said. "If we're not profitable, we're not being the community resource we can be." Limiting the amount a loan may fluctuate up or down is not a new concept in banking. Typically, banks set a floor to protect themselves from small interest rate payments and a ceiling to protect the consumers from exorbitant rates they may not be able to afford. Floors "probably didn't make sense a year ago" because the rates were never expected to drop so far so quickly, said Harry Davis, economist for the N.C. Bankers Association. MountainBank in Hendersonville has been careful to set floors in the past year, fearing the prime rate would drop. Banks typically set floors at the prime plus 1percentage point or 2percentage points for commercial loans and home equity loans. The prime rate itself is saved for the best customers who have stellar credit. The average consumer with a variable home equity loan at MountainBank is offered a contract that does not let the interest rate drop below the prime rate plus 2 percentage points, said J.W. Davis, chief executive and president of MountainBank. "We're doing a lot of floors," Davis said. "It just makes good business sense." On the bright side, many banks such as the regional Central Carolina Bank, say they have seen an increase in deposits, forcing them to pay more in interest rates but building their assets. CCB's core deposits are up 12.6percent for the third quarter of 2001 over the third quarter 2000. Many people withdrew their investments in the volatile U.S. stock market after the Sept. 11 terrorists attacks and put them in stable savings accounts, money markets and certificates of deposits, said Leo Pylypec, asset liability manager with National Commerce Finance Corp., parent of CCB. Economists and many bankers said Tuesday the past year of rate cuts has not revived the economy as much as hoped, although they say the cuts have helped prop up the economy. Now, they are beginning to wonder how much more the rates will be cut in the future. The key for banks reviving during the coming year may be guessing when interest rates will be raised because then their profit margins will be widened, Pylypec said. "It's just a matter of time." charlotte.com

To: robnhood who wrote (133268)	11/7/2001 2:12:13 PM
From: robnhood	Read Replies (1) \| Respond to of 436258

<<<-- =DJ Apache Unwinds Most Gas Hedges; Cites Enron Uncertainty -- By Christina Cheddar Of DOW JONES NEWSWIRES NEW YORK (Dow Jones)--Over the last few days, Apache Corp. (APA) has unwound nearly all of its hedges on natural-gas prices due to concerns about what would happen to the marketplace for energy derivatives if Enron Corp. (ENE) collapsed. According to Tony Lentini, a spokesman for the Houston natural-gas producer, many of the hedges were established to lock in the value of acquisitions the company made. Apache unwound all but one hedge, a transaction that involved Enron and other parties, Lentini said. Apache has a gain of about $70 million from the various transactions, but the company hasn't determined yet how the gain will be accounted for in its financial results, the spokesman said. Apache has been an outspoken critic of the merchant energy trading because of the company's perception that the system is underregulated and creates excessive energy price volatility. -Christina Cheddar, Dow Jones Newswires; 201-938-5166; christina.cheddar@dowjones.com >>>