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Bank of America names new Hampton Roads president

Tyrone Noel has been named president of the Hampton Roads region for Bank of America, the bank announced Thursday.

As president, Noel will lead 500 employees and operations across the Hampton Roads market and be responsible for growing market share and driving integration across the bank’s eight business lines. He will also lead the bank’s efforts to help advance economic mobility and strengthen communities throughout the region.

“Tyrone has established deep relationships with teammates, clients and the community during his career at Bank of America,” Bank of America chairman and CEO Brian Moynihan said in a statement. “In this new role, Tyrone will help ensure we are a great partner as we continue to grow across Hampton Roads.”

Noel replaces Francisco “Frank” Castellanos, who served in the role from September 2021 until becoming the Merrill market executive for Greater Washington, D.C., late last year. Castellanos replaced Charlie Henderson, who held the role for 15 years.

Noel has more than two decades of experience in financial services, and previously served as the market executive for Merrill Lynch Wealth Management, a role he will continue to serve in across the state. He joined Merrill, which is Bank of America’s investment and wealth management division, in 2011 as a financial adviser.

Noel, who lives in Williamsburg, has served as a mentor with Merrill’s women’s exchange as well as its Black professional group. He is also a member of the company’s Black executive leadership council.

Charlotte, North Carolina-based Bank of America is the country’s second largest bank. It reported $3.1 trillion in assets as of June 30, 2023 and $95 billion in revenue is 2022.

Wells Fargo to launch $87M expansion in Roanoke County

San Francisco-based Wells Fargo will spend $87 million to modernize and expand its Roanoke County customer support center, adding 1,100 jobs in a deal that will make the bank the county’s largest employer.

The deal is also the largest project employment announcement in the county’s history, as well as its largest commercial office investment, Gov. Glenn Youngkin said in a news release announcing the deal Tuesday.  Wells Fargo already employs 1,650 people at the county’s customer service center. With the addition of 1,100 workers, the bank will surpass the county’s public school system, which employs between 2,000 and 2,500 people, Megan Baker, the county’s economic development director, told Virginia Business in an email.

“Wells Fargo’s historic investment and new job creation has far-reaching benefits for Roanoke County, the region and the commonwealth,” Youngkin said in a statement. “Virginia has established a strong foothold in the fast-growing financial services industry, and we have developed an innovative framework to focus on nurturing and expanding opportunities in this high-growth sector.”

Wells Fargo is the nation’s fourth largest U.S. bank, with about $1.9 trillion in total assets. The bank generated $82.86 billion in revenue for 2022, reporting $13.2 billion in net income and $7 billion in operating losses.

John W. Delaney, Wells Fargo’s head of consumer operations, said in a statement that investments in the Roanoke space will include expanded amenities in food and health as well as expanded collaboration spaces and technology upgrades. The company will be eligible for a custom major employment and investment performance grant of $15 million, subject to approval by the General Assembly. Additional details about the terns of that grant were not immediately available Tuesday.

The Virginia Economic Development Partnership worked with Roanoke County, the Roanoke Regional Partnership, and the General Assembly’s Major Employment and Investment Project Approval Commission to secure the project for Virginia. VEDP will support Wells Fargo’s job creation through either the Virginia Jobs Investment Program or the Virginia Talent Accelerator Program.

Surge of credit card defaults ahead?

Americans owe an all-time high of nearly $1 trillion on their credit cards, setting the stage for a possible surge in consumer delinquencies and defaults.

“There are nascent signs of trouble brewing,” investment firm Glenmede Trust Co. warned in an April research note. “An ever–larger share of credit balances have transitioned to early stages of delinquency, consistent with past periods of recession.”

Lenders are feeling the losses, including McLean-based Capital One Financial Corp. The credit card giant reported a 60% drop in profits to $960 million in the first quarter from the same period a year ago, largely due to customers defaulting on their credit cards and car loan debts.

Like other large banks, Capital One is pumping up provisions for credit losses, as it set aside $2.8 billion in the first quarter, up from $677 million in the year-earlier period.

Not only are more customers at least 30 days late on their payments (at Capital One, 3.66% of total U.S. card holders in the first quarter were late, up from 2.32% a year ago), but companies are racking up more for write-offs — debts they never expect to collect (4.04% of total loans in the first quarter, up from 2.12% a year ago at Capital One).    

Capital One CEO Richard Fairbank told analysts in April that he “feels very good about the business,” given that defaults remain low by historic standards. However, he stated, profits could take another hit this year as rising delinquencies segue into actual losses.

Americans are piling on debt in the face of high inflation and rising interest rates.

Total credit card debt surged $61 billion at the end of last year to a record $986 billion and stayed at that level through the first quarter of this year, surpassing the pre-pandemic high of $927 billion, according to the Federal Reserve Bank of New York. Auto loan balances increased by $10 billion in the first quarter. 

Consumers typically pay down debt in January after the holidays, but not this year.

“Rising living costs and stagnating wages caused savings to decline, creating excess demand for credit card debt,” financial analyst Harrison Schwartz writes in a March report on financial news site “Seeking Alpha.”

“Initially, this situation was great for Capital One as demand for its products rose,” Schwartz continues. “However, the rapid decline in consumer sentiment and savings over the past year has caused default rates and expected loan losses to increase.”

In all, 46% of U.S. cardholders carry balances from month to month, up from 39% last year, according to January data, the most recent, from financial information provider Bankrate.com.

The average credit card balance per consumer this year is $5,733, up 14.4% from a year earlier, according to credit reporting agency TransUnion.

“We’re seeing three big trends with respect to credit card debt,” says Ted Rossman, senior industry analyst with Bankrate.com. “More people are carrying more debt and that debt costs more than ever (an average APR of 20.37%), the highest since we started measuring in 1985.”

Also, it’s the first time in the central bank’s 20-year report on household debt that credit balances failed to fall during the first quarter, which “could foreshadow trouble for later in the year,” Rossman says.

Interest rates likely will remain high for the foreseeable future, he adds, saying, “My top tip would be to sign up for a 0% balance transfer credit card (still widely available).”

The economic story facing consumers is straightforward, Schwartz says. “Rising living costs and excessive consumer spending on credit have caused many households to suffer significant declines in stability.”  

Building equity

When BB&T recruited Thomas Ransom, a Black economics student at Hampden-Sydney College, to join its management development program in the late 1990s, he quickly had to pick up the world of banking and its culture. 

The Urbanna native says he’d never met a banker before starting at BB&T and certainly didn’t know what moves to make to climb the corporate ladder. He had no one in his family he could talk to about work. But he leaned into his differences, forged professional relationships and learned how to “get comfortable being different.”

Today, as Virginia regional president for Truist Financial Corp. — the Charlotte, North Carolina-based megabank formed in 2019 by the merger of BB&T Corp. and SunTrust Banks Inc. — it’s important to Ransom that Truist helps people who look like him succeed.

“If you haven’t been in that environment, or [you are] in a room where you’re the only one that looks like yourself, it can be a challenge,” he says. 

Since 2020, after nationwide outrage following the police murder of George Floyd, a Black man living in Minneapolis, the banking and credit union industry — like much of corporate America — has taken a critical look at itself and how it can broaden its reach in terms of racial and ethnic diversity. Progress has been made, both in leadership positions as well as across the workforce, but in an industry that has been historically run by white male executives, there’s still work to be done, industry executives acknowledge.

In Virginia, three of the largest nation’s banks have Black men as market leaders — Ransom at Truist; Jermaine Johnson, Greater Washington, D.C., and Virginia regional president for Pittsburgh-based PNC Bank; and Victor Branch, Richmond market president for Charlotte-based Bank of America Corp.

“Companies that are more diverse in their workforce and their management … tend to perform better,” says Virginia Bankers Association President and CEO Bruce Whitehurst. “It’s a smart thing.”

A 2020 study from global management consulting firm McKinsey & Co. found companies in the top quartile for ethnic and cultural diversity on their executive teams were 36% more profitable than those in the bottom quartile. 

Being intentional

Whether establishing talent pipelines at universities, internal leadership development programs or cultural changes, banks and credit unions are working to broaden their workforces. 

“I have seen the industry grow and evolve and change and move in the right direction,” says Branch, adding that Bank of America’s leadership is “committed to creating a diverse and inclusive workspace.” 

Bank of America’s 14-person board now includes five women and two Black men. Additionally, 55% of the bank’s national management team includes women and people of color, up from 50% in 2020. About 50% of its workforce of about 217,000 are women. And 49% of the overall workforce is racially or ethnically diverse, up from 45% in 2020, according to the bank’s 2022 annual report.

At Truist, Ransom has played a key role in establishing scholarships, internships and other partnerships with historically Black colleges and universities, such as Virginia State University, where he delivered the fall 2022 commencement speech.

Truist has set a goal of increasing female leadership by 20% and ethnically diverse representation in leadership by 20% by 2025. Additionally, it has set a goal of raising its percentage of ethnically diverse senior leaders to 17.2%.

The bank’s 21-member board of directors of 14 men and seven women includes two Black men, two Black women and one Hispanic woman. In 2021, Truist’s workforce was 62.8% white, 18.7% Black, 10% Hispanic and 5.7% Asian, according to data analytics consultancy GlobalData. Women in 2021 made up 63.5% of all Truist workers but only 28.6% of senior leadership, up from 22.1% in 2019.

PNC Financial Services Group Inc. also is focused on increasing diversity.

In 2020, PNC held two major leadership forums, convening hundreds of the company’s Black executives, during which the company set goals, such as hiring a corporate social responsibility officer.

After the forums, PNC provided more opportunities for mentoring and advocacy and became “more intentional around giving people of diverse backgrounds an opportunity,” Johnson says. Of the leaders who attended the first forum, 25% have been promoted in the past three years, Johnson says, calling it a “real, tangible result” of the bank’s intentions — and success — in diversifying its leadership. 

“The word that stood out to me is ‘intentionality,’” he adds. “I think all of our leaders need to be intentional … [to] broaden the workforce, broaden the experience of people who contribute to our effort each and every day.”

In November 2022, PNC’s board established its Special Committee on Equity and Inclusion to assist with oversight of management’s equity and inclusion efforts, externally and internally.

PNC’s 12-member board, which has four female directors, is 25% racially or ethnically diverse, with members including one Black woman, one Hispanic man and one Indian woman. (Another Black director, former Microsoft Corp. executive Toni Townes-Whitly, stepped down from the board this year after she became CEO-elect for Reston-based Fortune 500 government contractor SAIC Inc.)

PNC’s workforce diversity increased slightly from 2020 to 2021, according to a filing with the U.S. Equal Employment Opportunity Commission. In 2021, the bank’s 58,599-person workforce was 59.58% female, with a diversity mix of 65.6% white, 14.8% Black, 10.7% Hispanic and 6.4% Asian in 2021. The year before, PNC had more than 7,000 fewer workers, and its diversity mix was 70.2% white, 14.2% Black, 6.83% Hispanic and 6.3% Asian.

By comparison, the largest bank headquartered in Virginia, McLean-based Capital One Financial Corp., has three Black male directors and three women on its 12-person board. Women made up just under 51% of its 55,943-person workforce in 2022. Capital One’s workforce diversity profile last year was 48.5% white, 20.3% Asian, 18.4% Black and 9.5% Hispanic. The bank’s percentage of Asian employees rose from 18.66% in 2020, while other demographics remained essentially flat.

In 2021, Capital One won numerous national awards recognizing its diversity, inclusion and belonging efforts, including support for workers with disabilities, veterans, LGBTQ+ employees, people of color, women and millennials. The credit card giant’s outreach efforts that year included increased partnerships with HBCUs and expansion of a program aimed at engaging first-generation college students with skills-building.

Reflecting communities

Community banks and credit unions also are stepping up diversity efforts, with many, like Suffolk-based TowneBank, creating internal councils devoted to promoting diversity, equity and inclusion initiatives. 

“We recognize that the look of banking in general was that of white men, and so, [it was] really saying we are going to … [focus] on why aren’t we attracting a diverse representation to the bank,” says Denise Counce, the bank’s senior vice president and diversity and inclusion officer. 

While there is progress being made, bank officials know there’s still much work to do. At the end of 2022, about 16% of TowneBank’s workforce was racially diverse, up from 15% in 2021, according to a bank proxy report.

In 2020, Newport News-based BayPort Credit Union created a DEI council “to ensure that workplace diversity and inclusion is understood,” says CEO Jim Mears. The credit union also has an employee experience specialist who runs programs in leadership development, a mentoring program and guides education sessions about personal and professional development.

BayPort’s leadership and workforce is becoming more diverse, Mears notes. The bank’s 11-member board is more than 45% racially diverse. Employees of color rose this year to 210 out of 508, or 41%, up from 163, or about 35%, in 2020. Promotions among people of color have increased as well, with more than 50% of promotions going to employees of color this year, up from 27% of 41 promotions in 2018.  

Bank workers should reflect the communities they serve, says John Asbury, CEO of Richmond-based Atlantic Union Bankshares Corp.

Atlantic Union had a DEI program before 2020, but after George Floyd’s death, it became clear that it wasn’t enough, Asbury says, so the bank created a DEIB council (the ‘B’ is for belonging), which he chairs. The council manages the bank’s efforts to create a more diverse, equitable and inclusive workplace.

Just one of Atlantic Union’s 12 directors is racially or ethnically diverse, according to its 2023 proxy statement. While the bank has not made its workforce demographics public, Asbury says it’s making progress, but acknowledges, “This is a journey.”  

Virginia Business Editor Richard Foster contributed to this story.

Atlantic Union to acquire American National Bank

Updated 4:15 p.m. July 25

Richmond-based Atlantic Union Bank’s parent company announced Tuesday that it has entered into an agreement to acquire American National Bankshares Inc., which is headquartered in Danville and is the holding company of American National Bank and Trust Co. The combined bank will have total assets of $23.7 billion as of June 30, according to the statement.

Atlantic Union Bankshares Inc. and American National expect to complete the merger in the first quarter of 2024, and both banks’ boards of directors have approved the deal. Two members of American National’s board — Carilion Clinic CEO Nancy Howell Agee and Virginia Furniture Market President Joel R. Shepherd — will join Atlantic Union’s board.

Jeff Haley, American National’s chairman, president and CEO, will “assist in the integration of the two companies and advise on the combined bank’s regional community banking model” in the bank’s locations in Southern and Southwest Virginia, as well as represent the merged bank in two Danville-based charitable trusts, the announcement said.

The combined bank will have total deposits of $19.1 billion and gross loans of $17.3 billion.

In a Tuesday afternoon news conference, John C. Asbury, president and CEO of Atlantic Union, said he expects the systems conversion to take place in May 2024, if the deal closes early next year as expected.

Over the next few months, Atlantic Union will assess the staffing and branches it will take on as part of the American National purchase, Asbury said, but that he wasn’t prepared yet to say how many American National employees’ jobs will be cut as a result.

He noted there is some overlap of the two banks’ branch locations in the Roanoke and Rocky Mount areas in which they are located so close to each other, “it makes no sense to have two branches operating. There will be some degree of [staffing] impact,” Asbury said, but with those “pretty limited” examples of overlapping branches, “we certainly are not interested in limiting convenience” and closing more branches. He also said that there are no plans to close American National’s Danville headquarters, where Haley expects to maintain an office, although those staff numbers will be part of Atlantic Union’s assessment.

Haley noted that the merger comes at a time when smaller community banks are merging with other banks. “There’s been a massive digital transformation in the industry,” he said Tuesday afternoon. “I believe that the model of what we do as a $3 billion community bank has changed. The foot traffic is down considerably since COVID. It has been a massive change in how people use banking services.”

Asbury added that he believes the pandemic accelerated digital banking, such as photographing checks and depositing funds digitally, or conducting Zoom appointments with branch staffers. “This industry isn’t going away, but there are going to be fewer of us.”

American National, which was founded in 1909, has 26 branches in Virginia and North Carolina and is Virginia’s ninth largest bank. It had $3.1 billion in assets as of June 30. Atlantic Union is the largest community bank headquartered in Virginia, with 109 branches, $20.6 billion in assets and $15.7 billion in deposits as of June 30. (McLean-based Capital One Financial Corp. is the largest bank headquartered in Virginia, with $38.37 billion in 2022 revenue and $467.8 billion in total assets.)

Under the agreement, each outstanding share of American National common stock will be converted into the right to receive 1.35 shares of Atlantic Union common stock, which would place the value of the transaction at $416.8 million, or $39.23 per share, based on Atlantic Union’s 10-day weighted average closing stock price ending Monday.

“American National is a high-quality community bank with an exceptional 114-year history, a strong core deposit base and outstanding asset quality,” Asbury said in a statement earlier Tuesday. “This is a company and leadership team we have long admired and know well, and the relationship between our two banks spans decades. We expect that our combined footprint will bring additional convenience to our customers and position us as an even stronger competitor against the large national, super-regional and smaller community banks. Increasing our presence in Roanoke and entering Southside Virginia will further build out our Virginia franchise, and the transaction will also allow us to gain meaningful entry into North Carolina’s attractive Piedmont Triad region and Raleigh. With a more diversified deposit base, expected synergies and enhanced growth market opportunities, we believe the combined franchise will be able to generate a higher level of financial performance for our shareholders.”

Piper Sandler & Co. is acting as financial adviser to Atlantic Union, and Covington & Burling LLP is acting as its legal adviser in the transaction. Keefe, Bruyette & Woods Inc. is acting as financial adviser to American National, and Williams Mullen is acting as its legal adviser in the transaction.

Editor’s note: An earlier version of this story incorrectly described Atlantic Union as the largest bank headquartered in Virginia. Atlantic Union is the largest of Virginia’s community banks, but the largest bank headquartered in Virginia is McLean-based Fortune 500 bank Capital One Financial Corp.

TowneBank hires chief risk officer, senior EVP

Suffolk-based TowneBank appointed Ernest Piccioli as senior executive vice president and chief risk officer, the bank announced Monday.

Piccioli is based at TowneBank’s headquarters. As chief risk officer, he will be responsible for governance of the company’s risk programs and oversee risk management, vendor management, credit review and appraisal services.

“Having Ernest aboard as chief risk officer provides added assurance for the sustained safety and soundness of our company,” TowneBank President and CEO William I. “Billy” Foster III said in a statement. “His proven success in an enterprise risk management leadership role for a large financial institution made it clear that he was the right candidate.”

Piccioli worked for Truist Financial Corp. for more than 30 years, most recently as executive vice president and chief risk officer. He holds a bachelor’s degree in business management and economics from North Carolina State University and an MBA from Wake Forest University.

Piccioli is a member of the Risk Management Association’s Lending and Credit Risk Professionals group and the Consumer Bankers Association’s Risk Committee.

“The TowneBank team has been so welcoming,” he said in a statement. “I look forward to leading the risk management efforts of this dynamic and growing organization that has always valued risk mitigation as a key factor in its success.”

Founded in 1999, TowneBank now has more than 45 banking offices throughout Hampton Roads and Central Virginia and in North Carolina. As of March 31, TowneBank had total assets of $16.73 billion.

NoVa chamber inducts Deb Gandy as next chair

Deborah G. “Deb” Gandy, senior managing director at Chevy Chase Trust Investment Advisors, was inducted as 2023-2024 chair of the Northern Virginia Chamber of Commerce on Tuesday.

Gandy, the first Black woman to chair the chamber, previously served as the chamber’s 2022-2023 vice chair and succeeds Matt McQueen, Peraton Inc.’s chief communications and engagement officer, as the chamber’s chair.

“The chamber board and executive committee are [composed] of as dynamic a group of business leaders as you’ll find in any major market in this country,” Gandy said in a statement. “With their participation, I am confident in the chamber’s ability to excel. … The chamber’s regional impact will be more significant this time next year than it is today.”

A wealth adviser and relationship manager for Chevy Chase Trust, which has offices in McLean and Bethesda, Maryland, Gandy advises clients in investment management, financial and estate planning and trust administration and oversees the delivery of services to clients.

Gandy was previously director and private banker at Citi Private Bank. Before that, she was a senior vice president and relationship manager at U.S. Trust Co., now Bank of America Private Bank. Gandy also held roles with Wachovia Bank and Trust Co. and the Royal Bank of Scotland in New York City.

Gandy is a past board chair for Lead Virginia and a 2012 graduate of the statewide leadership program. She serves on the board of directors for Signature Theatre in Arlington, the board of trustees for the Arlington Community Foundation and the Dean’s Advisory Board for George Mason University’s Honors College.

She holds a bachelor’s degree in business administration from the University of North Carolina at Chapel Hill.

The Northern Virginia Chamber also appointed other new board officers at its annual members’ meeting on Tuesday:

  • Vice chairman: Mark Carrier, president, B. F. Saul Company Hospitality Group
  • Secretary: Richard Pineda, president and CEO, Calibre Systems Inc.
  • Treasurer: Jeff Rubery, market executive, EagleBank

Founded in 1925 as a Fairfax County-focused organization, the Tysons-based Northern Virginia Chamber of Commerce represents more than 650 businesses that employ about 500,000 employees across the Greater Washington area.

Blue Ridge Bank names CEO

G. William “Billy” Beale became CEO of Blue Ridge Bank National Association on Sunday, giving the bank a leader separate from that of its parent company, Charlottesville-based Blue Ridge Bankshares Inc.

“I am excited to have the opportunity to join this team at a critical time in the banking industry,” Beale said in a statement. “Blue Ridge Bank has a unique community banking model with strong credit quality, diverse revenue streams, robust local market teams and sophisticated and innovative products.”

Brian K. Plum will remain the holding company’s president and CEO, focusing on broader strategy, technology and business line initiatives.

“Billy joining the team to lead Blue Ridge Bank provides the company with an experienced and successful bank executive who will be additive as we work to create shareholder value,” Plum said in a statement. “I have watched and admired Billy’s success during my career and am incredibly pleased to have him join Blue Ridge as a teammate.”

From November 2018 to July 2020, Beale was president and CEO of Midlothian-based Community Bankers’ Bank and he still serves on that bank’s board. Before that, Beale was CEO of Richmond-based Union Bank & Trust, now known as Atlantic Union Bank. During his tenure, from 1991 to March 2017, the bank’s total assets grew from $180 million to $8.5 billion. Beale joined a forerunner of the bank in 1989. From 1971 to 1989, Beale was an executive and commercial lender for Capital Bank and Security Bank, in Texas.

Beale received his bachelor’s degree in business administration from The Citadel, in South Carolina, in 1971, and he graduated from the Southwestern Graduate School of Banking at Southern Methodist University in 1981.

Chartered in 1893, Blue Ridge Bank has 26 locations in Virginia and one in North Carolina. As of March 31, Blue Ridge Bankshares Inc. had $3.33 billion in assets. At 11:10 a.m. on Monday, the company’s share price was $7.96, up 5.71% from its previous close price.

Fed Fifth District economy shrinks slightly

The economy in the Federal Reserve’s Fifth District (a multistate region including Virginia, North Carolina, South Carolina, West Virginia and Maryland) has contracted slightly since March, according to the latest edition of the Federal Reserve’s Beige Book, released Wednesday.

Published eight times per year, the Beige Book is based on anecdotal information about economic conditions gathered from the 12 Federal Reserve Banks. It is compiled from reports by bank and branch directors, as well as information gathered from business contacts, economists, market experts and other sources.

Here’s what the April 19 Beige Book edition revealed about the direction the economy is taking:

Manufacturing activity softened as manufacturers had fewer new orders, and customers began pushing back on price increases as supply chain pressures eased. Employers continued to struggle to find skilled workers.

Travel and tourism spending increased moderately in the region. The sector saw strong revenue growth, with hotels reporting increases in the number of rooms sold and higher room rates compared with last year. In February, Virginia hotel revenues were 14.9% higher than those recorded in February 2019.

Ports and trucking companies in the Fifth District reported declining freight volumes, especially in imports of retail goods and household items. Exports of loaded containers were stronger, though, particularly in auto and machine parts. Empty containers remained at ports slightly longer.

Because shipping carriers had excess availability, their spot rates fell to pre-pandemic levels or below, significantly under contract rates. Airfreight rates stabilized as airlines pulled back on freight capacity, according to the Fed.

Trucking companies saw a moderate decline in freight volumes and received some customer pushback on continued rate increases. Firms continued to add drivers but scaled back recruiting because of the lowered freight volumes. The supply of new tractors and trailers improved.

The Fifth District’s employment increased slightly compared with its March report, although respondents reported a continued lack of qualified workers. Wages increased modestly, partly because Virginia, Maryland and Washington, D.C., increased minimum wages.

Prices in the region continued to grow at a strong rate, the Fed reported. Manufacturers reported average price increases of about 5.5%, down from the 2022 peak, and service sector firms reported prices increases of about 6.5%, a near-peak rate.

Retail activity remained strong, although firms reported slightly lower sales and demand. Some retailers said they expected business to pick up soon, as their busy seasons started in April.

The typical spring housing market did not appear. Sales and pending sales in the Fifth District residential real estate market declined, and sales prices remained flat, although respondents began seeing new contracts at less than list price. Housing inventory has decreased year-over-year, and new listings have dramatically decreased. Although construction costs were down, builders did not buy new lots because of economic uncertainty.

Commercial real estate activity declined overall last month, particularly in the office market. Retail and industrial/flex space leasing, however, remained strong, and the industrial sector had higher rental rates. Sales slowed due to rising interest rates, and some banks stopped lending for new commercial construction projects or tightened underwriting standards.

Demand for all types of loans slowed modestly, but the commercial loan portfolio was the weakest. The region saw mixed demand from consumers, but demand for home equity and used auto loans increased some.

Deposit levels declined slightly, although some banks had an inflow of deposits following Silicon Valley Bank’s collapse. Financial institutions expected loan and deposit levels to decline moderately for the rest of the year, according to the Fed.

Barkin: Raising interest rates is correct course

As inflation remains high and the fallout from recent bank failures seems contained, the Federal Reserve Bank has good reason to continue raising interest rates, Federal Reserve Bank of Richmond President and CEO Tom Barkin said Thursday in a speech to the Virginia Council of CEOs at the University of Richmond.

“It is worth remembering that not every bank failure becomes Lehman Brothers,” Barkin said. “We’re all understandably scarred by the memory of 2008, but banks have failed throughout history, many without creating a broader crisis.”

On March 22, the Fed raises interest rates by a quarter-point, or 25 basis points, pushing rates to a range of 4.75% to 5%.

“If you back off on inflation too soon, inflation comes back even stronger, which requires us [the Fed] to do even more and cause even more damage,” said Barkin, who is currently an alternate member on the Fed’s powerful policy-setting Federal Open Market Committee. “With inflation high, broad-based and persistent, I just didn’t want to take that risk.”

While the broader implications from the failures of Silicon Valley Bank and Signature Bank and resulting actions taken by the Federal Deposit Insurance Corp., the Federal Reserve and Department of Treasury “aren’t yet clear,” Barkin said, banks, including in his region, the Fed’s Fifth District — a multistate region including Virginia, North Carolina, South Carolina, West Virginia and Maryland— seem to be resilient, with relatively stable deposit flows and adequate liquidity.

Meanwhile, the Fed’s interest rate increases don’t seem to be having much of an effect on inflation yet, with the headline consumer price index at 6% in February.

“Monetary policy is said famously to work with long and variable lags, but our 475 basis points of rate hikes over the past year have not yet compellingly moved inflation back to our 2% target,” Barkin explained.

Although inflation could drop quickly if banks tighten access to credit and the effects of increasing interest rates appear, Barkin said he expects it will take time for inflation to cool.

Economic disruptions from the COVID-19 pandemic continue, he said, with low vehicle and housing inventories, continuing order backlogs and a tight labor market. Consumers have unprecedented levels of wealth: “There was stimulus and suppressed spending that together still haven’t been put in the economy — well over a trillion dollars,” Barkin said.

Barkin also pointed to increasing prices and wages, as sectors like health care, utilities and food seek to restore margins to pre-pandemic levels and workers who saw a decline in their real wages seek higher wages to catch up.

Richmond Fed President and CEO Tom Barkin speaks in the University of Richmond's Jepson Alumni Center.
Richmond Fed President and CEO Tom Barkin speaks in the University of Richmond’s Jepson Alumni Center. Photo by Katherine Schulte/Virginia Business

High pricing is the third inflationary pressure that Barkin is watching.

“Supply chain challenges have just worn down purchasing departments,” he said. “They now seem more willing to accept increases, at a time when volatility has made supplier cost structures more opaque and availability more important.”

The Fed will have to be nimble, Barkin said, since the effects of the banking crisis and of high inflation could have wide-ranging results. “And if I’m wrong about the pricing dynamics at play, or about credit conditions, then we can respond appropriately,” he added.

On Thursday, Federal Reserve Bank of Boston President Susan Collins also backed the Fed’s decision to increase rates by a quarter-point in a speech during the National Association for Business Economics (NABE) Economic Policy Conference in Washington, D.C., according to Yahoo!Finance.

What does the future hold? What has happened in the economy in the last two or three years is almost like what happens when the country goes through a war, Barkin said, with lots of spending, monetary support, people moving in and out of jobs and inflation as a result. He’s hopeful the U.S. economy will get through the “post-war” period and calm.

“My hope is that on the backside of this is something that looks more normal,” he said, “looks more like the early ’20s, it looks like the late ’40s and early ’50s, where supply and demand have the opportunity to get back into balance through whatever combination of demand side moves, like the ones we’re making with rates, or supply side moves, like the ones I referenced earlier.”