Many local banks buck mortgage mess

By Tasha Kates

Published: July 24, 2008

Large second-quarter losses for national banks, such as the $8.7 billion lost by Wachovia Corp. announced Tuesday, have made for dismal banking news.

However, Virginia-based banks in the Charlottesville area say mortgage and credit issues hurting many large banks and lenders haven’t beaten them down. Some local banks even have reported an increase in deposits.

E. Joseph Face Jr., commissioner of the State Corporation Commission’s Bureau of Financial Institutions, said state-chartered banks seem safe from some of the perils facing major lenders such as Wachovia.

“They have not been involved in the subprime mortgage market, and they are not affected by it,” Face said. “I’m not expecting any Virginia banks to have the type of problems we’ve seen in California.”

Some local banks don’t even issue 15-year or 30-year mortgages. At Virginia National Bank, the five-year note is the biggest offered, said Glenn Rust, the bank’s president and chief executive officer.

“We’ve avoided the mortgage business because it has good times and bad,” Rust said. “It’s a tough industry to predict. We stay out of that discipline because it doesn’t fit our commercial lending strategy.”

Nationally, the news has been bad for mortgage lenders. On Wednesday, the U.S. House of Representatives passed a bill that would allow the Treasury Department to bail out Fannie Mae and Freddie Mac, two major mortgage companies that own $5.3 trillion in mortgages. Both companies, which own about half of the nation’s mortgages, have posted large losses because of a downturn in the mortgage market.

Earlier this month, the FDIC seized IndyMac Bank after worried depositors withdrew $1.3 billion from the nearly $19 billion in the bank’s deposit coffers.

Virginia National Bank is one of nearly 30 state-based banks that work with the Certificate of Deposit Account Registry Service, or CDARS. The network of banks allows institutions to take a consenting customer’s money and split it among banks so that the customer’s CDs remain in accounts under the $100,000 FDIC limit for traditional bank accounts. Rust said the customer still gets one statement from Virginia National.

All but about $1 billion of IndyMac’s total deposits were insured by the FDIC. The bank’s customers will be covered under the federal limits, but customers who had large accounts may not get all of their money back. Virginia National Bank joined CDARS about nine months ago, Rust said, and has seen an increase in deposits since.

“This is one way we were prepared if the economy ever got a little weird,” Rust said. “This plays well for customers who want a little bit more of security.”

The University of Virginia Credit Union has never issued subprime loans, said Peggy Deane, vice president of mortgage services. The union also keeps all of its home loans on its books, unlike larger lenders that have a percentage of loans sold in a secondary market.

If the mortgage and credit crunch has affected the credit union at all, it has increased the number of members, Deane said.

“All lenders have suffered under the crunch and the tightening of lending guidelines, but what has happened is we are seeing an increase in volume,” Deane said. “Members are coming back to the credit union.”

The credit union also has seen more people choosing Federal Housing Administration loans, which can help first-time homeowners, senior citizens and people who want to buy a fixer-upper or make their home more energy efficient.

Banking at the Charlottesville-based Stellar One has remained steady, said Linda Caldwell, spokeswoman for the Charlottesville-based bank. However, Caldwell said the bank doesn’t plan on adding programs or services.

“We feel that we are managing deposits entrusted to us very conservatively,” she said. “Customers, because of all of the media around IndyMac, are certaintly more aware and looking for safety and soundness among financial services.”

Sebastian Hindman, an analyst for SNL Financial, said Charlottesville banks have remained strong because of an increasing population and a higher-than-average household income compared with the rest of the country.

Having a properly managed bank helps, Hindman added.

“Banks that have management with a more conservative approach will be the ones who have stayed out of trouble,” Hindman said. “It may be an issue depending on how deep this recession goes, but banks in strong areas with good management teams are probably going to be fine.”

Wachovia’s announcement of its $8.7 billion loss was followed by a plan to slash 10,750 positions, with more than 6,000 layoffs expected. The rest will come from cutting positions that are open or held by contractors.

Wachovia did not return phone calls seeking comment on the possibility of layoffs in Central Virginia.