July 01, 2008
Lou Douglass, president of the Alpharetta Community Bank, uses his 37 years of banking experience to gauge the market and the economy. In his decades in commercial, retail and management banking, he has seen economic cycles come and go, so in many respects, today's economy holds few surprises.
While banking problems may stem from residential lending issues and the direct affect tight credit has on the construction market, he said the big issue today is the oil industry and its impact on the oil economy.
"I would say right now the banking industry as a whole is still very solid," Douglass said. "What we are seeing is predominantly related to the residential construction market and the mortgage industry. Of course our bank, we don't do mortgage loans. We are not impacted on a direct basis, but on an indirect basis."
Today, mortgage lenders set lending criteria so much stiffer, even more so than one or two years ago. "The ability to buy a home today has slowed considerably. Builders just aren't building.
"On the residential construction side, the banks are not financing many spec homes, if any. Most are doing contract homes," Douglass said.
Not all is so gloomy.
"On the other side of the coin, the flip side, commerical is solid. We have not seen any deteriorations like we have seen on residential. That's not to say we haven't slowed down," he said.
Many strip centers sit vacant, but Douglass said interest rates have come down and stabilized for the most part. A compression lag has been seen on CD rates and interest rates. It has stabilized for the banking industry. But he said it takes a crystal ball to see what is going to happen.
"I'll be quite honest: cash is king, particularly on the part of the creditor, cash is the name of the game – and the ability to carry debt for a long period of time," he said.
"Most banks today have gotten really credit cautious, more than a year or two ago," he said.
How did it get there?
"I honestly believe that as much as very few peple want to hear this, is that the regulatory restrictions that should have probably been in place for what I call the super creative financing coming out of Wall Street," Douglass said.
He points to the instruments used to secure subprime loans to sell the loans.
"The fact that not very many regulatory controls were in place or checks and balances, caused a tremendous amount of international flux, domestic flux," he said.
"On the other side, trillions of dollars were made by all of these companies in hard dollars. But what you see now is a breakdown in paper," he said.
Values dropped considerably, with that trickle down affecting all parts of the industry.
"Liquidity issues dried up all the mortgage companies. Mortgage companies weren't doing any mortgage loans, there was no funding,"
The change wasn't a stair step or step down
"It came down faster than anything I've seen in my 37 years [in banking]," Douglass said. "It was the speed that it came down... like a light switch."
What does the future hold for Alpharetta Community Bank?
"From a bank position I think we are failry solid from a liquidity standpoint and also capitalization. I honestly believe the last report that is how we showed our bank to be almost twentieth in size in Georgia, almost $1 billion," Douglass said.
Opportunities down the road may include merger other banks into this bank.
We just bought First National Bank of Forsyth, now Forsyth Community Bank," he said. "We are absorbing that now.
"I think there's opportunity for us to move into other markets as the economy of the market comes back, as well as other initiatives we've taken on, subject to regulatory approval," he said.
What advice would you give to banking customers?
"As a customer, I would be looking for relationship banking where I go into a bank, where I'm known to the bankers in that particular bank. I'm not just a commodity, not just a number. I would be looking for those services that fit all of my personal needs across the board.
"Is the bank going to have everything I need? Probably not. It's kind of a loaded question: all banks are the same, offer the same services. Banking relationships are one of the keys to our success," Douglass said.
What more is in store?
One of the biggest questions in this banker's mind is the continued approval of new banks in today's economy.
"I belive in free enterprise and I'm all for competition, no problem with that. I do have a big issue: How can regulatory officials approve new banks knowing issues that are facing a lot of metro Atlanta today, or the state? That's one of the biggest question marks out there today," Douglass said.
He said from January 2007 to March 2008, 20 new banking entities had been approved between Dahlonega and Mansell Road. Four that have been approved have yet to open. Of the 20 new offices, only two are extensions of existing banks.
"Given the geographical market – we're all fighting for the same dollars, basically. There's only so much going around," he said.
The impact on the economy will be mergers of equals down the road, he said.
"Some banks are going to have to merge to survive," Douglass said.
"We know that there are four that have been approved, applications are going to be filed in June for at lesat four more. I'm all for free enterprise. But how much more can the market absorb," he asked.
- www.northfulton.com
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