THE VIRGINIAN-PILOT
Copyright (c) 1996, Landmark Communications, Inc.
DATE: Monday, January 22, 1996 TAG: 9601200388
SECTION: BUSINESS WEEKLY PAGE: 26 EDITION: FINAL
SERIES: Forecast 1996
SOURCE: BY TOM SHEAN, STAFF WRITER
LENGTH: Medium: 77 lines
Their profits have rebounded. Their sour loans are a fraction of what they were four years ago. And most have plenty of capital for expansion.
By almost every measure, most of the region's banks and thrifts are in great shape.
But bankers will have more difficulty producing the hefty increases in earnings this year that they generated in 1994 and 1995.
Falling interest rates are likely to squeeze the spreads between what they earn from loans and what they pay for their deposits. In addition, non-bank competitors, including mutual funds and finance companies, continue to take away depositors and borrowers.
So how are Hampton Roads banks and thrifts responding?
Some, including Bank of Tidewater, have stepped up their efforts to bring in new loans. Others, including First Union National Bank, have expanded their offerings of investment products in an effort to generate fee income.
Bank of Tidewater expects loan growth of 10 to 15 percent this year - most of it from small-business borrowers, said Betsy Duke, president and chief executive officer of the Virginia Beach community bank.
During 1995, Bank of Tidewater witnessed an upturn in loan demand from expanding businesses, Duke said. In addition, there has been a modest recovery in borrowing for commercial real estate.
Still, ``loan growth is getting tougher to come by,'' she said.
As skittish consumers scale back their borrowing, larger banks like First Union National Bank are aggressively promoting the sale of mutual funds in an effort to generate non-interest income.
Some smaller institutions have decided they too have to offer more than checking accounts and certificates of deposits to hold onto customers. ``There is a growing level of sophistication about investments among depositors, so you have to make these products available,'' said Edward E. Cunningham, president and CEO of Life Savings in Norfolk.
To deliver their loans and investment products at lower cost, some banks are investing heavily in computer and telecommunications systems. Signet Bank, based in Richmond, has reduced its reliance on branches and resorted to direct-mail and telephone solicitations for making student loans, installment loans and home equity lines of credit.
``What we found is that you don't need bricks and mortar'' to identify prospective borrowers and lend them money, said John Matson, Signet's regional executive for Hampton Roads. ``We think the technology side of banking is where the growth is.''
Squeezed in recent years by indifferent loan demand and shareholder pressure to bolster their efficiency, banks also have been shedding employees and shutting less productive branches.
``I think you'll see more branch closings,'' Bank of Tidewater's Duke said.
However, the aggressive cost-cutting of recent years probably has run its course, said Vernon Plack, a banking analyst with the securities firm Scott & Stringfellow Inc.
``The important thing going forward is to generate additional revenue,'' something that banks cannot accomplish merely by cutting costs, Plack said. ILLUSTRATION: Color photo
Bank of Tidewater CEO Elizabeth Duke
Color photo by Steve Wewerka/The Virginian-Pilot file
Banks such as Norfolk-based Home Savings are competing for
consumers.
VP Graphic
A Rebound in Banking
Non-performing loans
Income
For copy of graphic, see microfilm
by CNB