Three years after the recession, local banks are getting their mojo back.
Of the 15 community banks headquartered across Richmond, 11 reduced their nonperforming assets through the first six months of 2012, according to their most recent financial statements. Community banks had approximately $404 million in nonperforming assets on their combined books on June 30, 2011. A year later, that number is $362 million, down 11 percent.
And more banks are making money: As of the end of the second quarter, 11 banks were in the black. That’s up from six from the same period in 2011.
“The light in the tunnel doesn’t look like a freight train,” said Joe Shearin, president and chief executive of EVB. After losses in 2009, 2010 and much of 2011, the Tappahannock-based bank posted a $473,000 profit in the second quarter and a profit of almost $1 million through the first six months of the year.
EVB’s nonperforming assets were down to $22 million from $35 million in same period last year and from a peak of $39 million in 2010.
“It’s been a long bumpy ride through these last couple years,” Shearin said. “Bad things have happened to good people. People lost jobs. Small businesses have suffered. But it’s getting better.”
Union First Market Bank reported the largest second-quarter profit among local banks with $8.42 million, far outpacing the nearest competitor, C&F Bank ($4 million in profits).
With almost $4 billion in total assets, Union is among the largest community banks in the state and by far the largest based in Richmond. Its total level of nonperforming assets was at $85 million as of June 30. That’s down from $100 million a year ago. Union was also is the only local bank to have remained profitable throughout the recession.
But what has some bankers optimistic is that institutions such as Essex Bank, Central Virginia Bank, EVB and Bank of Virginia, all of which have struggled for more than two years from the downturn, are beginning to post consecutive quarterly profits, getting a grip on bad loans and further ridding themselves of foreclosed real estate.
Union chief executive Billy Beale said the increasingly positive figures are result of Richmond finally catching up to other markets in the state, such as Charlottesville and Fredericksburg.
“Other cities went into the downturn earlier,” Beale said. “Prospect Homes was the first homebuilder to go belly up in Richmond [in the fourth quarter of 2009]. That was almost a year, if not 18 months behind what was happening in some other parts of the state.”
Borrowers are also coming back, slowly.
“Despite all the angst that is out there over congressional fiscal cliffs, sequestration and the election, there still people who are more confident today about the economy than there has been, at least based on their willingness to borrow money,” Beale said.
For Union, which has branches all over the state, its annualized loan growth for its Richmond operations was positive for the first time since 2008, Beale said.
“We’ve seen it in Fredericksburg and Charlottesville since 2010. But Richmond is starting to pick up,” Beale said.
Despite the positives, there is still some red in the Richmond market.
Village Bank, First Capital Bank, Franklin Federal Savings Bank and New Horizon Bank all reported losses in the second quarter.
Village Bank and its holding company saw the biggest jump in nonperforming assets over the past 12 months. The $524 million bank’s levels of nonperforming assets rose to $74 million as of the end of the second quarter. That’s up from $29 million in the comparable period of 2011.
That increase — along with having to set aside further cash to cover the bad loans — resulted in a $9.92 million loss for Village in the second quarter and a loss of $11.54 million through the first six months of 2012.
Village chief executive Tom Winfree declined to comment on the bank’s second-quarter performance beyond what was contained in its earnings release.
Village said in its earnings report that the rise was due to “defaults and restructuring of larger real estate loans related to acquisition, construction, land development and commercial real estate.”
Village has struggled with its concentration of lending on land development in its home base of Chesterfield.
“Chesterfield still seems to be a bit down because they had so much inventory,” Shearin said, referring to the high level of residential building that went on in Chesterfield during the housing boom.
Glen Allen-based First Capital Bank’s $7.93 million second quarter loss was a result of further purging of its nonperforming assets and setting aside reserves.
First Capital, per an agreement with a Northern Virginia investor who helped recapitalize the bank this year, was required to take a harder look at its loan portfolio. That resulted in a change in its policies to resolve $33.5 million of nonperforming and performing loans and $5.9 million of foreclosed real estate.
Consequently, its total nonperforming assets at the end of the quarter were down almost $15 million from the year before.
Franklin Federal Savings Bank and New Horizon both posted smaller losses of $354,000 and $33,000 for the quarter, respectively.
Local bankers say the declining levels of nonperforming assets are partly a result of fewer borrowers falling behind and of some getting back on their feet.
“I don’t think you’re seeing the surprises anymore,” said Rick Wheeler, chief executive of Franklin Federal. “You knew what problems you had three or four years ago. And there are not a lot new ones coming up unexpectedly.”
There’s also a strong market for foreclosed real estate, which is helping banks unload the unwanted property from their books, hence the decline of nonperforming assets at many banks.
“We see more interest in the foreclosed assets,” Wheeler said. “There just seems to be more players entering, in a positive way, looking to buy good property. They feel like the worst has passed.”
Loans on large plots of land slated for stalled residential development and unbuilt residential lots are still a lingering problem for banks in the region, Wheeler said.
“They will take time to work out,” he said. “There is value there, and it takes longer to have those work out.”
Another positive sign is increasing competition for commercial loans.
“It’s becoming more of a borrowers market than a lenders market, which must mean it’s getting better,” Wheeler said. “Banks are out there aggressively lending again, with prudence. But they’re back in the game.”
But with more than $300 million in nonperforming assets on the books, the region’s banks aren’t completely out of the woods yet.
“I would say that most community banks in the Richmond market have nonperforming assets that they’ll have 10 years from now. I think some of this will take that long to work through,” Beale said.
It is misleading to state that Union First Market Bank has branches all over the State. It has none West of Roanoke and none in Southside such as
Danville, Martinsville, South Boston, etc. just to cite a few examples.