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Banks see brighter days ahead
After tough end to 2008, first quarter of 09 brings good news
Peach State Bank & Trust president and CEO Ron Quinn stands outside of his business Thursday on Washington Street. Peach State Bank is one of the few banks that have reported a profit in the past two quarters. - photo by SARA GUEVARA

When stockholders of Peach State Bank & Trust gathered for their annual meeting earlier this month, the company's top officers were able to say something few banks could say about last year: They made a profit.

In the world of banking, it wasn't a giant profit, just $75,000. But in a year when banks were racking up losses in the tens of millions, it was good news.

"What we saw happen is that in the last quarter of 2008, things just came to a stop," said Ron Quinn, president of Peach State.
Among the contributing factors were a huge drop in interest rates.

"Rates had the biggest drop ever, 375 basis points in an 11-month period," Quinn said. "When rates drop that much everybody's net interest margins get squeezed and nobody can make any money."

Quinn said his bank has seen improvement month after month since the first of the year. It ended the first quarter with a profit of $118,000, more than it made in all of 2008.

While Peach State was able to turn a first-quarter profit, it remains a challenging time for many banks.

Some banks that have already reported first quarter earnings have seen their losses shrink from the levels of the fourth quarter of 2008.

Blairsville-based United Community Banks reported a net operating loss of $32 million, or 71 cents per diluted share, for the first quarter of 2009. The company said the loss was primarily driven by higher credit costs, including the $22 million buildup in the allowance for loan losses.

United Community, a publicly traded bank, will meet with its stockholders in Young Harris this week.

"The recession and its effect on the housing and construction markets, particularly in Atlanta, continued to drive credit quality issues in our loan portfolio," United Community Bank CEO Jimmy Tallent said in a statement. "A rise in the level of classified and nonperforming assets, and deterioration in property valuations, led us to increase our allowance by $22 million over net charge-offs.

"While we remain committed to moving through this credit cycle as quickly as possible, our efforts have been hindered by this difficult environment."

Georgia's largest bank, SunTrust, this week reported a net loss for the first quarter of 2009 of $815.2 million compared to net income of $290.6 million in the first quarter of 2008.

"There are two clear messages that emerge from our first-quarter results," said James M. Wells III, SunTrust Chairman and Chief Executive Officer. "First, SunTrust, like other financial institutions, is still working through credit and earnings challenges as the weak economy continues to take a toll on performance. Second, there are some preliminary signs of improvement in several key areas, including mortgage originations, consumer and commercial deposit growth, and early-stage delinquencies."

A spokesman for the Georgia Bankers Association said some of its members are seeing better numbers.

"We've seen some banks report lower levels of losses," said David Oliver, a spokesman for the association. "There are some that have actually reported profit this quarter. The early numbers we are seeing give us cautious optimism that things are getting better in the marketplace."

Oliver said individual markets are showing signs that the housing situation is flattening out with initial signs of a turnaround.

"There are still a number of issues for Georgia's banks directly related to distress in the real estate market," Oliver said.
He said it remains a tough environment for banks.

"Bank performance reflects the general local economy," Oliver said. "When times are good, banks perform really well. When times are tough, banks, like other businesses in the area, will struggle."

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