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Cash flow: Local bank, credit unions doing well in spite of financial crisis

I’m reading an article in Time magazine a few weeks back, and there’s a report on how a few new local community banks seem to be doing well in spite of what would seem to be the conventional wisdom on banks and business across the board.

It occurs to me that there’s a new local community bank in the Greater Augusta market, Frontier Community Bank, which opened its first and to date sole branch in Waynesboro on Lew Dewitt Boulevard in February 2008.

I wondered aloud to myself, How do they fit into this thing with local community banks doing well in this otherwise tough time for banks?

Apparently quite well, is the answer.

“We don’t have the troubled-loan portfolio to work through. We don’t have any GSEs on the books. We don’t have any mortgage-backed securities investments or any pending writedowns. So yes, it does help us. We can focus upon developing core business and servicing our customers rather than doing some of the other things,” said Alan Sweet, the executive vice president at Frontier, which Sweet said is holding steady in meeting its early projections. “When we were projecting, we were in a much more vibrant economy two years ago than we are now, so we’re very pleased that we’re right on projections,” Sweet said.

But what does that mean, “meeting projections”? According to the State Corporation Commission, Frontier had more than $34.4 million in assets on the books at the end of calendar-year 2008. More significant is its Tier 1 leverage ratio and Tier 1 risk-based capital ratio, which according to a company balance sheet available at stood at the end of ’08 at 29.84 percent and 29.12 percent, respectively, and the total risk-based capital ratio, which at the end of the ’08 year was at 30.32 percent.

A leverage ratio of 5 percent, risk-based capital ratio of 6 percent and total risk-based capital ratio of 10 percent are the standards for a well-capitalized bank, according to the Federal Reserve.

So at least for now, Frontier would appear to be gold standard even among well-capitalized banks.

“It seems like community banks thrive in these kinds of times,” Sweet said. “People want more of a personal touch, a personal relationship. They want to know who they’re banking with.”

That same kind of personal touch has pushed business up at two local community credit unions – the DuPont Community Credit Union based in Waynesboro and the University of Virginia Community Credit Union based in Charlottesville. Both have seen their asset lines spike the past couple of years, to just short of $400 million at the UVa. Community Credit Union and just short of $655 million at the DuPont Community Credit Union as of the end of 2008, according to the SCC.

“We ask our members, If you’re having issues, tell us before,” said Kim Dean, the senior vice president of technology and lending at DCCU. “If you know, just come in and let us know. Work with us. We’re not going to just foreclose on your house or come get your car. We want to keep you in that house. Let’s keep you in that vehicle so when you get another job you can go to work. That’s in our interest as well.”

Both local credit-union institutions are adding to their personal touches with a schedule of personal-finance seminars that aim to help members manage their home budgets more wisely. “We’re finding a spike in attendance at those seminars. People are really taking more of an interest in wanting to learn more and be able to do more,” UVa. Community Credit Union spokesperson Janine Williams said.

The UVa. and DuPont community credit unions and the new Frontier Community Bank are seeing higher-than-expected activity in the lending sphere, which probably isn’t a surprise considering what is going on with the big banks getting bailed out of the mess that they have created for themselves.

“The advantage that many community banks have is that they are community banks,” said Rich DeMong, a professor of bank management in the McIntire School of Commerce at the University of Virginia. “They have a deposit base from a diverse number of people, individuals, small businesses, various associations, nonprofits. And then on top of that, most of the community banks that I’m aware of in Virginia did not get involved in some of the discredited lending practices of the 2004-2007 period, the subprime mortgages and the discredited collateralized mortgage obligations and collateralized debt obligations that have caused so much difficulty for some of the large banks.”

That harkens back to something Sweet said earlier about the lack of toxic instruments on the books at Frontier. It makes sense that institutions that don’t have the level of bad mortgages on the books that precipitated the financial crisis wouldn’t be doing so bad right now.

The big boys might be a bit reluctant to lend out money right now, but the economy still demands a free flow of money to operate even on a basic level, and that money has to come from somewhere.


Story by Chris Graham