Summer is typically a quiet time in the banking industry, but not for a Virginia Beach thrift company still searching for ways to become profitable.
Essex Bancorp said last week that it would sell five of its remaining 12 branches - along with about $70 million of deposits - to Cenit Bank in nearby Norfolk.
Along with a previously announced deal to sell three other branches, all in North Carolina, to Centura Banks Inc., the transaction would reduce Essex to four branches with about $165 million in assets.
"It's a classic example of addition by subtraction," said Essex chief executive Gene D. Ross.
The sale is part of a long period of ebb and flow for Essex. At one time in the early '90s, the thrift company had more than $500 million of assets with subsidiaries in several states. But nonperforming loans, higher capital requirements, a recession, and a huge lawsuit crippled the company.
Mr. Ross, a turnaround expert, was brought in four years ago to resurrect Essex. But it hasn't been easy.
A year ago, in fact, Essex appeared to have reached the end of its rope. Capital levels fell below minimum requirements, and the Office of Thrift Supervision told the company it would be seized if sufficient capital were not raised by July 1.
Two days after that deadline, Mr. Ross made the surprise announcement that Essex was acquiring another company, Home Bancorp, through warrants and preferred stock. The innovative move gave Essex the capital needed to survive.
But the acquisition has not yet put the company in the black. Essex still lost $1.6 million in the first quarter, for example.
Mr. Ross said that the branches acquired in the Home Bancorp deal proved to be a drag on earnings, and the company was not willing to commit its scarce capital toward strengthening them. Essex's four remaining branches, on the other hand, are all in attractive markets and show "excellent growth potential," he said.
"By selling these branches and reducing our size and the amount of operating costs associated with them, we'll create more capital, and it should enable us to reach profitability," Mr. Ross said.
As for when he thinks Essex will become profitable, Mr. Ross said it has to be "sooner rather than later, because the shareholders will very soon become impatient."
A committee formed by the board last winter determined that the time was not right to consider selling the company, in part, Mr. Ross said, because doing so would cause it to lose $20 million worth of net operating loss carryforwards.