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Carter discusses growth, challenges

Thursday, June 27, 2013

By GINNY WRAY - Bulletin Staff Writer

Carter Bank & Trust has grown despite a difficult operating environment, according to its board chairman/president.

Worth H. Carter Jr. discussed the bank’s financial health and the challenges it and all community banks face at its annual shareholders meeting on Wednesday at its Bank Services of Virginia Operations Center in Henry County.

Carter Bank was created on Dec. 29, 2006, when 10 previously independent commercial banks were combined into one bank. Between that time and the end of 2012, Carter Bank posted increases in investments, 125 percent; loans, 36 percent; total assets, 65 percent; and total deposits, 71 percent.

All those categories except loans also have risen dramatically between Jan. 1 and May 31, 2013, Carter said. Loans were flat during that period, he added.

Total deposits increased $451 million or 12.5 percent in fiscal 2012 over fiscal 2011. That growth came in all deposit areas except Lifetime Free Checking, which declined $45 million, according to Carter and the annual report. Interest-bearing demand accounts rose $23 million, regular passbook savings increased $186 million and total certificates of deposit rose $287 million, the report stated.

While deposits increased in volume, the rates paid dropped, the report stated. As a result, total interest expense fell $153,000. Net interest income rose $4 million and noninterest income rose $355,000.

The bank’s MasterCard debit card program net income has risen from $595,000 in 2010 to $1,796,000 in 2012, according to the annual report. The bank’s FDIC assessment is coming down due to a change in how it is calculated, and the bank will get a $3 million to $4 million refund on pre-paid FDIC payments at the end of June, Carter said.

“Just think of what we could have done if things had been different in Washington,” Carter wrote in the annual report, referring to the economic downturn which, he said, was “exacerbated by the total gridlock and lack of direction from Washington. High unemployment persists, massive federal deficits continue, regulatory burden has increased substantially and the impact of Obamacare (Affordable Care Act) has yet to be felt.”

Carter said there are four areas that he expects will have a negative impact on community banks:

• Full implementation of the Dodd Frank Act. A large potion of the law has not been written, and that part will negatively impact community banks, he stated in the annual report.

• The Consumer Federal Protection Bureau, which he said will have one person as its head, no congressional oversight and financing from the Federal Reserve System profits. Its recent rules on consumer mortgage lending, which will take effect in January 2014, will be costly to implement and will reduce the availability of credit to some people and extend the time and increase the cost of obtaining a mortgage, Carter said he believes.

• Basel III accords, which were supposed to affect only large international banks. But Carter said he thinks what has been proposed will negatively impact Carter Bank.

• Obamacare. Carter Bank will implement its own health insurance plan Sept. 1, which will match Medicare payments plus 30 percent. That, Carter said, will save the bank $300,000 a month. Carter said he thinks Obamacare makes it more attractive for employers to not offer health care insurance so employees will use the government system, but he said that is not necessarily the best way to attract and keep employees.

Carter especially was critical of the regulatory environment in which banks are operating, calling it “extremely difficult and getting worse every day.”

He noted that community banks are almost nonexistent today. There used to be 15,000 to 16,000 banks in the U.S., and now there are about 7,000, and that number could drop, he said.

“It’s almost as if ... Washington wants fewer and fewer banking institutions” that would be easier for examiners to handle, he added.

“If regulators had done their job, we wouldn’t be where we are today,” Carter said, adding that some communities have lost their banks and more may do so in the future.

There is a lack of good-quality loan requests, he said. He noted that low interest rates likely would spark borrowing, but because of the economic uncertainty, people are repaying loans instead.

Low interest rates are good for the government because it pays less on its debt, but they are hurting seniors who have saved their money, Carter said. He predicted that interest rates for consumers will not change for 12 to 18 months.

Carter announced that Raymond James financial services will become a market maker for Carter Bank stock. Local brokers still can handle trades of the stock, but Raymond James will take a position on the stock or commit its funds to buy the stock if someone wants to sell it, for instance.

On another subject, Carter warned of growing incidents of bank fraud, especially through hackers tapping into electronic banking systems. Protections are improving but “losses can be astronomical,” he said, adding that Carter Bank has put its plans for online banking on hold due to fraud concerns.

In the future, Carter said people should be mindful of what is happening in Washington with regulations, Obamacare, interest rates and the economy. Carter Bank will continue to work to keep costs down and try to find more good loans, he said.

“All together, these are extremely trying times,” he added.


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