Essex Bank offers few details of turnaround plan

A local bank battling more than $100 million in delinquent loans has vowed a return to profitability.

The declaration came from the head of Essex Bank and its Glen Allen-based parent company Community Bankers Trust Corp. after the bank lost $19.8 million in the second quarter.

“Our goal is an immediate return to consistent quarterly profits,” said CBTC President and CEO George M. Longest Jr. in the company’s latest earnings release. “To accomplish this, we have no alternative as a company but to make clear and intelligent decisions in the next 60 days, no matter how difficult, to accomplish that goal as soon as possible.”

Few details were immediately available about what that plan entails. Several calls to Longest, CFTC CFO Bruce E. Thomas and Chairman Alex Dillard Jr. were not returned.

The company lost $29.3 million in 2009 and $23 million through the first six months of this year, according to its regulatory filings.

In its second quarter earnings release, Longest announced a change in strategic direction of the company.

“Our strategy has shifted from that of an aggressive acquisition platform, to one that meets the banking needs of the communities we serve, while providing sustainable returns to our stockholders,” he wrote.

Longest gave a bit more detail in a news release last week after the company announced it must defer its TARP dividend payment to the U.S. Treasury Department, hinting that some branches of Essex Bank might be closed down. The company received $17.7 million in December 2008 from the Treasury in exchange for preferred shares as part of the Troubled Asset Relief Program. It was due to pay the Treasury $221,000 in dividends this month.

“These steps include the assessment of the contributions of all branches to our franchise value and expense reductions so that we can restructure and strengthen the balance sheet,” Longest said.

CBTC was created in 2005 as a bank acquisition company. It began its growth in 2008 by acquiring banks and bank holding companies in Virginia and the assets of a failed bank in Georgia. It acquired another failed bank in Maryland in early 2009. Those banks were brought under the Essex Bank umbrella, which now consists of 25 branches, including 14 in Virginia, seven in Maryland and four in Georgia.

Despite its losses, CBTC remains well capitalized according to regulatory standards, although maintaining those levels has come at the expense of shareholders. In addition to not paying its TARP dividend to the federal government, it also ceased paying a dividend to its shareholders.

Capital levels have also diminished over the past six months. CBTC’s total risk-based capital ratio dropped to 14.3 percent at the end of June from 16 percent in December.

Many of the steps CBTC is taking to tackle its bad loans are similar to those that have been made by banks that are under turnaround agreements with state and federal regulators.

In its second quarter report, CBTC said it performed an extensive review of parts of its commercial loan portfolio, where most of its problems lay, and it now has a “more conservative internal recognition of problem loans.”

It said it is analyzing the quality of its entire credit process and that it is currently reviewing the company’s staffing and procedures for handling problem loans, including the creation of a “loan watch list.”

It has also hired firms to help assess some of its weaknesses and has added a new chief credit officer and separated the roles of CCO and chief lending officer.

Neither CBTC nor Essex Bank is party to any such agreement with regulators.

Michael Schwartz covers banking for BizSense. Please send news tips to [email protected]

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George G Cramer
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Banks have had there problems over the recent years. Some survive and some don’t. It is my understanding that Essex Bank grew by acquisitions of problem banks. Although change is generally not accepted it is necessary to be a survivor. I have been in banking, private industry and a purchaser of loan portfolios for investors for over 30 years. My experience is bank turnarounds specifically the problem loans (Special Assets including consumer, commercial, real estate, business loans, home equity and mortgages). The turnaround plan seems to take hold of the issues and hopefully work them out (either by restructure, liquidation,… Read more »
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