THE VIRGINIAN-PILOT
Copyright (c) 1995, Landmark Communications, Inc.
DATE: Monday, January 23, 1995 TAG: 9501210096
SECTION: BUSINESS WEEKLY PAGE: 19 EDITION: FINAL
SERIES: Forecast '95
SOURCE: BY TOM SHEAN, STAFF WRITER
LENGTH: Medium: 53 lines
When he arrived at People's Bank of Virginia Beach in late 1989, Thomas E. Flounders III didn't have time to solicit new customers.
Faced with mounting losses and dwindling capital, the new president was under pressure to quickly cut costs and shed troubled assets.
``I was putting out fires all the time,'' Flounders recalled.
By early 1993, People's shareholders sold their faltering institution to Charlottesville-based Jefferson National Bank.
Jefferson's strength and the improved banking environment enabled him to spend more time courting prospective borrowers, said Flounders, president of the company's Hampton Roads region.
Like several area bankers, Flounders expects the rebound in bank profits to continue through 1995.
But rising interest rates and stiffer competition for loans have clouded the industry's prospects for 1995. Demand for home mortgages has already slowed, and new-car sales are falling as consumers react to the higher cost of credit.
Still, bankers in Hampton Roads hope they can attract borrowers.
Life Savings Bank budgeted a 20-percent increase in its residential mortgage lending this year, counting partly on consumer favor for adjustable-rate mortgages, said Edward E. Cunningham, president the Norfolk thrift.
But in the scramble to book new commercial loans, some banks have cut rates.
These institutions will be tempted to sacrifice their credit standards, said G. Robert Aston Jr., president Virginia Beach-based Commerce Bank.
If that happens, some banks will eventually be saddled with the sorts of troubled assets that battered their earnings in the early 1990s, said Aston.
Rising interest rates are forcing banks and thrifts to increase what they pay for deposits, something that interest-starved savers have been waiting for.
The industry, however, continues to hold down costs, including the cost of gathering deposits.
``The regulatory burden means it's more expensive to operate a bank today than it once was,'' said Flounders. That means banks are less inclined to compete aggressively for deposits or build additional branches to attract additional customers.
Many institutions are entering new markets or acquiring other banks.
KEYWORDS: BANKING by CNB