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By TINA E. VAUGHN
INDEPENDENCE — While the economy makes it difficult for community banks to make money, financial conditions overall are improving, according to recent reports from the Federal Deposit Insurance Corporation.
For the Twin Counties, this national trend is mirrored in the area’s only locally-owned financial institution, Grayson National Bank, and leaders plan to present those findings during an annual meeting May 8.
Headquartered in Independence, Grayson National Bank holds 77 percent of total bank deposits in Grayson County, according to its annual report, making it the county’s primary bank and a main provider of small business, farm, personal and real estate lending. This means the bank is not only a vital source for the local economy, it’s also an indicator of the economy’s impact on the area’s citizens and businesses.
During an interview with Grayson National Bank’s management team Monday, administrators discussed the past year and preparations for the upcoming annual meeting of Grayson Bankshares Inc., the bank’s holding company.
In January 2011, the Office of the Comptroller of the Currency, which oversees all national banks and savings institutions, found what it termed “unsafe and unsound banking practices relating to asset quality and credit administration” during a routine examination at Grayson National Bank. The finding resulted in an official written agreement between the OCC and Grayson National in August 2011.
In essence, Grayson National had a high number of problem loans on its books — again mirroring national trends as U.S. delinquent debt, much of that resulting in foreclosures, continued to soar.
Grayson National’s Chief Credit Officer Rebecca Melton, who previously served as an OCC National Bank Examiner herself, noted that from 1998 to early 2008, two banks in the district were placed under enforcement action. That number jumped to 11 from 2008 to 2011. Nationwide, 53 banks faced enforcement actions in 2007 compared to 364 in 2010, she said, and that’s not including enforcement actions that have no public documentation, she explained. “That’s a big swing.”
The 2007-2009 recession and mortgage crisis led to a rise in the number of problem loans that banks had on their books; it also led to stricter enforcement by regulatory agencies who were thrust into the spotlight amidst a worldwide financial crisis and mortgage meltdown.
For example, the OCC won’t budge when it comes to the “unsafe and unsound” language used in its contracts, despite the misleading terms, said GNB’s Executive Vice President and Chief Banking and Lending Officer Allan Funk. Also, even though it’s a community bank, Grayson National finds itself regulated by the very same agencies that oversaw “too-big-to-fail” banking giants that either shut their doors or depended upon government intervention for help.
Grayson National didn’t find itself in such a position. There was no need or desire to grab federal bailout funds, explained Chief Financial Officer Blake Edwards.
Grayson National Bank had remained focused on both its customers and its market, noted Funk, lending money to borrowers in Grayson, Carroll and Wythe counties, Galax and Alleghany County, N.C., the very places Grayson operates bank branches — the very places bank leaders and staff live, work and attend church.
In this instance, Grayson National bucked the national trend. It didn’t find itself bogged down in sub-prime mortgages, holding unmanageable loans for properties in far-off states, freezing credit or juggling too many foreclosures to count.
But that doesn’t mean the bank didn’t — and doesn’t — face challenges, Funk noted. With ongoing economic woes, including high unemployment, the devaluation of real estate and a sluggish real estate market, Grayson National Bank’s customers are facing economic difficulties. Grayson National’s loan portfolio confirms the downturn, showing an accumulation of write-downs, which means the value of an asset (usually a home or land) is adjusted downward because it is overvalued compared to current fair market value.
There’s also an increase in problem loans (delinquent debt), which requires an unprecedented level of intervention and attention. “A big strategy of ours is getting together and working with customers one-on-one to help them,” Funk said.
Such attention may mean a slower recovery, but it also means a thorough and steady one, and one that addresses terms of the written agreement.
The written agreement with the OCC has two themes, Funk noted: addressing credit quality and having the right people in place to guide the bank through this uncharted territory and new banking culture.
In fact, notes Funk, the bank’s reorganization (spearheaded by President and Chief Executive Officer Jacky Anderson and which included the appointment of the management team) actually came months before the bank entered into the agreement with the OCC.
The team’s duties have included everything from Executive Vice President and Chief Operations Officer Rodney Halsey renegotiating vendor contracts for money savings to Edwards reviewing capital plans. “We are well-capitalized,” Edwards said.
The annual report confirms that, showing that, despite the economic woes facing the area, the bank maintains enough cash to cover both its depositors’ requirements and its customers’ credit needs.
The team is optimistic about Grayson National Bank’s future, Anderson said.
“The bank is very blessed with the management team and our board of directors. They care greatly for the community and the shareholders they serve,” Anderson said.
Directors and management will give detailed reports regarding Grayson National Bank and the banking industry as a whole during an annual meeting of Grayson Bankshares, Inc., beginning at 1 p.m. May 8 at the Independence Volunteer Fire Department building.
(Grayson Bankshares, Inc., is the holding company for Grayson National Bank, and shareholders meet annually in Independence to elect board members, conduct routine business matters, consider shareholders’ requests and review the bank’s reports.)
The meeting is open to those who owned shares as of March 31 and management encourages all shareholders to attend, Anderson said.