Kingdom Realty

There have been a few headlines in the papers over the last few days which connect, at least in my mind, to troubled waters ahead for small banks. This, in turn, could spell even more troubled waters ahead for even the most successful entrepreneurs and small businesses. Over the past 1.5 years, we have all been made aware of the credit crunch which has adversely affected entrepreneurial activities as individuals and existing small businesses have largely been cut off from new and already-extended credit. The bright spot in the arena has come from local small and regional banks. These banks have continued to offer credit to people and businesses with good credit scores and track records. F&M Bank of Concord and Bank of Granite are examples of banks that have received many recent favorable recommendations from local businesses here in Concord, NC & Charlotte, NC. At the same time, the larger banks such as Wells Fargo and Bank of America have largely shuttered their doors to even the most qualified of customers.

However, the articles I have been reading over the past week leaves plenty of room to ponder the future of credit availability over the next year. A 02/12/10 Wall Street Journal article entitled “Georgia Gives Banks More Rope” describes how the state signed into law a bill that allows banks to exceed current lending limits of a borrower hasn’t fallen behind on payments. It was previously illegal for banks to put more than 25% of their total capital into an existing lending relationship secured with collateral or more than 15% to an unsecured borrower. Some opined that if this law change did not pass, it would have deepened the real estate crisis in Georgia, which is the #1 state in bank failures. Supporters also worried that Georgia banks would lose some of their best borrowers unless the limits were loosened. Loan losses since the housing bubble burst have eaten into capital levels at many of the state-regulated banks, causing them to collide with the loan-limit caps even when trying to extend additional credit to longtime, highly reliable borrowers. But others believe now is not the time to give banks more flexibility. Since the start of 2008, regulators have seized 32 banks in Georgia, most located near Atlanta in an area know as the “ring of death” by local bankers. In one failure example, Integrity Bancshares lent almost all of its available capital to one real estate developer.

Next to this article is another titled “Small Banks Hit Snag as They Raise Cash”. This article outlines how some small banks are trying to buy back trust preferred securities at an 80% discount. Most potential new investors are leery of investing in banks with these type of outstanding secruties, since holders of those investments would be first in line to recover losses if the bank collapsed.

And from the day before “Small Banks are facing loan woes because of losses on commercial real-estate loans”. The article stated that nearly 3,000 small US banks could be forced to dramatically curtail their lending because of losses on commercial real estate loans. Of the roughly 8,100 US banks, 2,988 small institutions have problematic exposure to commercial real estate loans.

It seems small banks and ultimately, small businesses, have a real whirlwind of issues coming up, eh?