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Carter: Feds regulations hurt banks, businesses
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Worth H. Carter Jr.

Thursday, June 26, 2014

By GINNY WRAY - Bulletin Staff Writer

Federal regulations are a growing problem for banks and small businesses, the president of Carter Bank & Trust said Wednesday.

Regulations are a real “burden on our bank and in particular small businesses trying to comply with regulations and rules coming out of Washington,” Worth H. Carter Jr., the bank’s CEO as well as president, told shareholders at the 2013 annual meeting at its Bank Services of Virginia Operations Center in Henry County.

He noted that 40 years ago, he started a bank in Rocky Mount that was the first of 10 independent commercial banks that merged to create Carter Bank & Trust on Dec. 29, 2006.

“If we had the same regulations we have today, none of this would be here today,” Carter said.

The initial banks started by Carter had total capitalization of $6.2 million, he said. “Today, they won’t even talk to you” for less than $25 million.

A chart comparing Carter Bank’s growth since it was formed in 2006 and the end of the 2013 fiscal year showed increases in investments, 141 percent; loans, 43 percent; total assets, 73 percent; total deposits, 80 percent; total capital, 30 percent; and net income, 113 percent.

Today, however, regulations stymie growth rather than encourage it, he said.

For instance, he said years ago he was impressed with how many area residents bought homes and paid off their mortgages. Today, because of different regulations, some of these same people and others like them cannot get loans, he said.

“The government is forcing us to turn down people it says can’t afford” a loan, he added.

The situation will get worse with the implementation of the Basel III accord, an international regulatory framework for banks that will start to be phased in on Jan. 1. Carter said it has three sections, two of which apply to Carter Bank. Those two constitute more than 700 pages, he said.

When it comes to regulations, “reading is a chore; understanding is something else,” he said.

Carter estimated he spends 80 to 85 percent of his time dealing with regulations, and “there is no end in sight.”

Basel III will require banks to meet certain capital requirements, Carter said. If they can’t, they cannot expand or take other steps.

In addition to Basel III, Carter Bank is impacted by the Dodd Frank Act, the Consumer Federal Protection Bureau and the Affordable Care Act.

“These four items have had a tremendous impact on the bank and are continuing to increase our costs as we spend an enormous amount of time and effort to comply with their many regulations,” Carter wrote in the bank’s annual report. “I do not see any relief in the near future and am extremely pessimistic as to the long-term effects all of these regulatory changes emanating from Washington will have on the economy.”

“ ... Congress has not solved the ‘too big to fail’ concept but has created a ‘too small to survive’ category. In spite of all of this, we feel the results we have achieved since the merger have been satisfactory,” he added.

Carter Bank’s loans net of unearned income rose $100 million in 2013 over 2012, a trend that continued in the first quarter of 2014, the annual report states. Its loan-to-deposit ratio on Dec. 31 was 47 percent; excluding $270 million in municipal loans, the ratio would be 41 percent, both highly conservative figures, the report adds.

“Our outstanding loans continue to increase as we have seen a recent increase in higher quality credit requests. We believe we will be able to continue to increase loans in the foreseeable future,” according to the report.

Total deposits had a net increase of $209 million in 2013. The increase was in all deposit categories except Lifetime Free Checking, which declined $23 million, the report states. It attributes that to changes in the FDIC Insurance.

“We anticipate and would welcome a slowdown or pause in our deposit growth,” the report states. “With the new Basel III capital requirements ... , a pause in deposit growth to allow our capital growth to ‘catch up’ would be a good result for the bank and its stockholders.”

Also for 2013, interest expense fell $3.7 million due to lower rates; net interest income dropped $5.8 million; net income was $26.1 million, a drop of $4.3 million or 14.1 percent from 2012; and net income per share fell to 99 cents versus $1.16 for 2012, the report states.


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