Despite the unrelenting bad news about collapsing real estate values in many markets in the Southeast, community banks can still point to a few cities and regions where real estate lending remains strong.
In areas such as Hampton Roads, Va.; Savannah, Ga.; and Nashville, banks of all sizes are adding branches, loan offices, and lenders to meet steady demand for commercial and commercial real estate loans.
The $1.9 billion-asset Gateway Financial Holdings Inc. is so bullish on the Hampton Roads area, for example, that it has roughly doubled its staff of lenders there in the last year and just last week announced that it has chosen Virginia Beach as the home for its corporate headquarters.
Bankers are quick to say the robust markets are not immune to economic downturns, though they have shown a resiliency that they attribute to their diverse economies, geography, and, in some cases, picturesque locales that are tourist magnets. And unlike a number of areas in the Southeast, from Northern Virginia to Greater Atlanta to South Florida, that have backlogs of unsold homes, the real estate markets in these places did not overheat in the first place.
Bankers say that their biggest challenge in these markets has been gathering enough low-cost deposits to meet the loan demand.
Gateway is to be the lead tenant in a 22-story office building scheduled to open in Virginia Beach two years from now. Its bank subsidiary is chartered in North Carolina, but it chose Virginia Beach as its corporate home because it wants to boost its visibility in an area that chairman, president, and chief executive officer D. Ben Berry called "one of the strongest markets in the state and the country."
Though Gateway has scaled back its lending in some markets hard hit by the real estate downturn, it sees Hampton Roads, a seven-city region that includes Virginia Beach, Norfolk, and Newport News, as a market it can count on for steady loan and deposit growth.
The region is home to the world's largest naval base. It's a major center for shipbuilding, and it ranks among the East Coast's top tourist destinations.
It has "all the things you'd want to see in a good economic area," Mr. Berry said.
Gateway has been in the Hampton Roads area since 2000. It operates in a number of solid markets, Mr. Berry said, such as Richmond, Va.; Raleigh, N.C.; and Wilmington, N.C., but it also has three branches in the Outer Banks, where demand for vacation homes has cooled. "About three years ago we stopped making lot loans, and we backed off the market," Mr. Berry said. "It was getting too hot."
Jack W. Gibson, the president and CEO of the $563 million-asset Hampton Roads Bankshares Inc., said the Navy base "provides a cushion and puts an enormous amount of revenue into the area."
Often, military people are stationed at the Norfolk Naval Base as their last duty assignment, he said, "and they'll retire from the Navy and stay in the area because it's a very nice place to live."
The region also has a strong manufacturing base, he said, particularly in shipbuilding.
Still, attracting enough deposits to keep pace with loan demand has not been easy, so Hampton Roads Bankshares recently made a deal for Shore Financial Corp. on Virginia's Eastern Shore, in part to add low-cost deposits for lending in Hampton Roads.
"Loan demand [in Hampton Roads] is very strong, but deposit gathering is expensive because of competition," Mr. Gibson said.
Consolidated Bank and Trust Co., a Richmond institution with $100 million of assets, has one branch in Hampton, Va., where it has been active in financing construction of church sanctuaries, day care centers, and other facilities for nonprofit organizations.
The small bank has one lending officer in the area, but Alan Howard, its chief financial officer, said it is looking to add one or two to keep pace with demand. In addition, the bank made a deal in February for three First Union National Bank branches, two in Hampton and one in Newport News. Consolidated is to add $30 million of deposits if the deal closes as expected late this month.
Mr. Howard said credit quality in the area is excellent because nonprofits are diligent about making loan payments on time. "In the Hampton Roads area we haven't had a chargeoff in the last three years," he said.
Though "the loans are easy," he said, "deposits are a little more difficult." The city of Norfolk has approached the bank about opening a branch there, he said, but the fierce deposit competition has made Consolidated hesitant.
"We said, 'Bring us $25 million in deposits and $10 million in loans, and we'll open one,' " Mr. Howard said.
Savannah is similar to Hampton Roads in that it has a thriving port, a strong industrial sector — the private-jet maker Gulfstream Aerospace Corp. is the city's largest manufacturing employer — and is a popular destination for tourists.
It also has a large military presence. Just outside Savannah, in Hinesville, Ga., is Fort Stewart, one of the largest Army bases in the country, and in Savannah is Hunter Army Air Field, the air support facility for Fort Stewart.
Sea Island Bank, a subsidiary of Synovus Financial Corp., is headquartered about 46 miles northwest of Savannah, in Statesboro, Ga. It has opened four branches in Savannah since 2004 and plans to open a fifth soon, said D. Wayne Akins, the president and CEO of the $703 million-asset bank.
Mr. Akins said that growth in Savannah has naturally moved inland so "we found ourselves with a lot of mutual customers that worked or lived or did business in the Savannah market and the Statesboro market." He added, "It was a natural progression for us to open offices in Savannah."
The bank continues to expand, adding 16 lenders, for a total of 20, in the Savannah area alone during the past year.
Sea Island Bank said that loan demand in the Savannah area has been primarily in retail and office projects, as well as port-related warehouse developments.
Competition in Savannah has ratcheted up. At June 30, the city had 119 branches, compared to 91 three years earlier, according to Federal Deposit Insurance Corp. data. Among the new entries is the $8.2 billion-asset United Community Banks Inc. in Blairsville, Ga., north of Atlanta, which moved into the market in 2004 and now has three branches the company says are run "semi-autonomously" by local bankers.
Rex S. Schuette, United's chief financial officer, said that, though he has seen credit quality weaken somewhat in the Savannah area, it is "nothing at all like what we've seen in Atlanta."
United reported chargeoffs of $31 million in the fourth quarter, up nearly 500% from the same period a year earlier, due largely to its exposure to a fraudulent land development project in North Carolina but also to weak real estate conditions in some of its markets.
Mr. Schuette said he does not see the Savannah market overheating in the same way because real estate development there has been less speculative than in Atlanta.
Nashville is not a port city, but it has a diverse industrial and commercial base that has kept its economy strong, said Janet Miller, the chief economic development officer for the Nashville Area Chamber of Commerce. The top industries are health care, computer manufacturing, automobile manufacturing, distribution, and entertainment.
Arthur Helf, the president and chief executive officer of Tennessee Commerce Bancorp Inc. in Franklin, said the $899 million-asset company has added three lenders in last six months — for a total of nine — and has been active in financing construction of public facilities such as medical centers, government buildings, and schools.
"We've built a school a year for the last 12 years," Mr. Helf said.
Still, Randall Clemons, the chairman and CEO of the $1.3 billion-asset Wilson Bank Holding Co. in Lebanon, Tenn., said he is concerned that the area is becoming overbanked.
"We just have more banks than the market will support," he said. But this has not stopped banks from coming in. From June 30, 2005, to June 30, 2007, Nashville-area branches increased 13%, to 540, according to the FDIC.
Despite the competition, Mr. Clemons said, his company's earnings were up 4% last year, and he expects 2008 to be even better.
"We had the best January and February in our bank's history," he said.
