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Va. bankers say they’re not worried by SVB collapse

Last weekend was pretty tense for bankers, even for those leading institutions quite distant and different from Silicon Valley Bank, which Friday became the second largest bank to fail in U.S. history. Federal regulators shut down SVB after a run on the bank. By Sunday, regulators also shut down New York’s Signature Bank, which became the third biggest bank ever to fail in the United States.

As word spread about SVB customers pulling out their money due to fears the FDIC would back only $250,000 per account, stocks dropped for banks everywhere, including in Virginia. “Friday, all banks got painted with the brush of fear,” Rex Smith, United Bank’s Central Virginia regional president, said Monday. “It was a lot of fear and misinformation and lack of information.”

United Bank’s stock rebounded a bit on Monday, as people learned more about what happened at SVB, which had $209 billion in total assets in December and was a major backer of venture capital-backed tech startups. According to NPR, 90% of SVB’s deposits were above the federal insurance cap of $250,000, and VC investor Peter Thiel’s Founders Fund members withdrew millions from the bank, leading to what Judy Gavant, chief financial officer of Blue Ridge Bankshares Inc., called “just one of those old-fashioned runs on the bank.” SVB investors and depositors attempted to remove $42 billion from the bank on Thursday alone, said a California state regulator.

On Sunday and Monday, the White House and federal regulators took emergency steps to ensure that SVB and Signature Bank customers will have access to their deposits, which helped calm fears among startup entrepreneurs and their funders. U.S. Treasury Secretary Janet Yellen and President Joe Biden both emphasized that taxpayers would not be on the hook for reimbursing SVB and Signature account holders, with the money coming from the FDIC’s Deposit Insurance Fund, which banks pay into.

Biden also said that the bank executives responsible would be fired and that the banks’ investors would not be bailed out. “They knowingly took a risk and when the risk didn’t pay off, the investors lose their money. That’s how capitalism works,” Biden said during a Monday morning address from the White House.

Furthermore, in a move designed to prevent more bank runs, the federal government announced it had also initiated backstop measures to protect the entire nation’s banking deposits, safeguarding banks from $300 billion in securities losses.

Banks everywhere still suffered some financial fallout from the banking crisis, however, as investors sold off banking shares and sought safety in gold and Treasurys, kicking off the largest drop in regional bank stocks in three years.

And Virginia was no exception. Blue Ridge Bank, based in Charlottesville, saw its stock drop 8.97% Monday, and Fairfax-based FVCbank’s stock fell 11%. Share prices for Richmond’s Atlantic Union Bank, the largest regional bank headquartered in Virginia, with 2022 deposits of $15.7 billion, fell by 6.69% to $33.74 Monday.

However, the “unique risk factors” that affected SVB are not issues likely to impact the community and midsize banks here in Virginia, said Andy Farmer, spokesman for the Virginia State Corporation Commission, which regulates the commonwealth’s 47 state-chartered banks. “Virginia’s banking industry remains strong and well-capitalized.”

Atlantic Union CEO John Asbury noted the difference between his bank and the two that were shut down last week: “These are nontraditional banks engaged in nontraditional activities that grew rapidly. We are a full-service traditional banking facility.” Silicon Valley Bank, he said, was started to serve tech startups backed by venture capital firms. However, venture capital funding and loans for tech startups started to dry up in the past year, leading the startups to seek more withdrawals from the bank, Asbury said. SVB was invested heavily in long-term securities that weren’t liquid, though, and when the bank couldn’t find a buyer, SVB sold $21 billion in fixed-rate securities last week at a $1.8 billion loss in an unsuccessful attempt to hold off the bank run.

“All of this frightened their customers,” Asbury said. By contrast, his bank and others in Virginia have little to do with the tech startup industry, at least compared to SVB, and Atlantic Union has never had a losing financial quarter since its founding in 1902, Asbury added. Meanwhile, New York-based Signature Bank was a major lender to the cryptocurrency industry, which, Asbury said, is “very unstable” and largely unregulated.

The federal government’s actions are meant to “avoid a crisis in confidence in banks,” Asbury said, but he and others in the industry said Monday they haven’t fielded many calls from customers about the situation.

“The banking system is safe, sound, well-capitalized, so this is very different from the fall of 2008,” when the collapse of Lehman Brothers, the fourth-largest U.S. investment bank, amid the Great Recession kicked off an international banking crisis, Virginia Bankers Association President and CEO Bruce Whitehurst remarked Monday. “That was a very different situation from the one we have today.”

Some Virginia banks have emailed or called their customers to reassure them that their funds are safe, and that the situation at the two shutdown banks was quite different from a typical community bank.

Reston-based John Marshall Bancorp Inc. put out a news release Monday affirming that the bank’s “financial condition remains strong.” The bank issued the release, it said, to “inform our shareholders as well as the customers and employees of the Bank that we are of sound financial condition, [and] our business model differs materially from that of SVB’s.”

For any individual or corporate customer who has less than $250,000 in savings at a bank, Whitehurst said, the current banking situation is not a big deal, but for any company “trying to make payroll, it is. If they have any questions or concerns, they should talk to their banks. It’s always a good idea for business owners to have an ongoing dialogue with their bankers.”

Steve Yeakel, president and CEO of the Virginia Association of Community Banks, dismissed the dips in bank stocks Friday and Monday as “nothing more than noise,” adding that he expects it all to be a footnote “in two or three weeks.”

One longer-lasting outcome of the situation, though, could be more banking regulations, though that could also include raising the federal insurance cap of $250,000 for business banking customers, which would be welcome news, Virginia bankers said. “I think it’s good that regulators are taking a second look at FDIC limits,” Smith said.

Liberty to pay off $189M in bonds early

Liberty University plans to pay off more than $189 million in taxable bonds next month, according to paperwork filed Wednesday by the Bank of New York Mellon Trust Co. NA. The prices will be set March 31, which will include accrued interest.

Liberty issued a $100 million bond in 2012 with a 5.1% interest rate, and in 2019, it issued two more bonds, with the principal amounts of $86 million and $3,745,000. All three bonds will be redeemed April 5, according to the documents, which were posted Wednesday on Liberty’s financial disclosure website. Davenport & Co. LLC, the Lynchburg-based private Christian university’s financial adviser, will determine the “make-whole” prices of the bonds, which is equal to 100% of the principal amounts, or the sum of the present values of remaining principal and interest payments on any bonds being paid off.

The 2012 bond, issued to fund construction projects, becomes mature on March 1, 2042. The 2019 bonds of $3.7 million and $86 million, which replaced an existing bond debt from 2010 at lower interest rates of 2.246% and 3.338%, are due March 1, 2024, and March 1, 2034, respectively. The BNY/Mellon Trust Co. is trustee of the three bonds, which were estimated at a worth of $193.41 million as of June 30, 2022, according to Liberty’s financial audit report for fiscal year 2022.

Liberty’s endowment was at $2.169 billion in fiscal year 2022, according to its 2022 financial report, and its total assets without donor restrictions were just below $3.5 billion. The University of Virginia, which reported a $9.8 billion endowment in fiscal year 2022, tops the state’s list of college endowment funds.

Founded by Jerry Falwell Sr. in 1971 as Lynchburg Baptist College, Liberty has grown into an online-learning juggernaut, with 95,148 students enrolled in 2021, most of whom study remotely, according to the university. However, the school has been subject to multiple controversies since 2020, including former chancellor and president Jerry Falwell Jr.’s fall from grace in August 2020. He was forced to resign after a series of personal scandals, including allegations that he had knowledge of an affair between his wife and a young man who also was their business partner briefly. Falwell has denied that allegation, but the university sued him for $10 million for breach of contract, a suit that is still active in Lynchburg Circuit Court.

Liberty also was sued by 22 anonymous women — both former students and staff members — who alleged that Liberty “intentionally created a campus environment where sexual assaults and rapes are foreseeably more likely” and discouraged victims from reporting their assaults. In May 2022, 20 of the plaintiffs settled their lawsuits against Liberty. The U.S. Department of Education announced in May 2022 it would investigate the university over claims of Title IX misconduct.

A former employee, John Markley, filed a $20 million lawsuit against Liberty in November 2022, claiming he was fired for being a whistleblower. Liberty also launched a third-party investigation of the university’s finances and real estate dealings during Falwell’s tenure in late 2020, but no report has been publicly released yet.

Interim President Jerry Prevo, the school’s former longtime board chair, plans to step down after this academic year; in August 2022, the university announced it was starting a search for his replacement.

 

ManTech names new CFO

Herndon-based government contractor ManTech International Corp. has named Michael D. Ruppert as its new vice president and chief financial officer, following the retirement of Judy Bjornaas.

The appointment was effective Tuesday. Bjornaas spent a dozen years at ManTech, which was acquired by The Carlyle Group Inc. last year, and contributed to its growth toward becoming a nearly $3 billion government services contractor with nearly 10,000 employees worldwide.

Ruppert will report to ManTech President and CEO Matt Tait. He will be responsible for the company’s financial, treasury and corporate development functions.

Most recently, Ruppert was executive vice president, CFO and treasurer for aerospace defense contractor Mercury Systems Inc.

“I am very excited to take on the CFO role at ManTech, a company that is a tech leader in the government space with its sophisticated technology solutions that transform the success of customers in the defense, intelligence and federal civilian sectors,” Rupert said in a statement.

Before he was at Mercury Systems, Ruppert was co-founder and managing partner of RSPartners LLC, a mergers and acquisitions firm focused on aerospace and defense. He was also a managing director at UBS Securities, leading the company’s defense and government IT efforts. He has also worked at Lehman Brothers and Lazard Freres. He has a bachelor’s degree in finance and an MBA from the University of Virginia.

ManTech provides technology solutions for U.S. defense, intelligence and federal civilian agencies.

Members only

Credit unions in Virginia would like to grow their membership, but a rule change relaxing the state’s policy is not in the cards this spring.

This year’s short General Assembly session — in an election year with a split legislature — makes it harder to pass bills with any controversial elements, and any major expansion of membership at credit unions will bring opposition from community banks. Under state law, credit unions cannot add more than 3,000 members at once without approval from the State Corporation Commission.

“Given the political circumstances, it’s unlikely we will see that this session,” says Carrie Hunt, president and CEO of the Virginia Credit Union League, an advocacy organization for Virginia-based credit unions, both state- and federally chartered.

“We’re still fishing for the federal legislation,” she adds, referring to a bill working its way through the U.S. Senate that would expand credit union fields of membership, or the legal definition of who is eligible to join a particular credit union under its charter. “It hinges on that.”

Meanwhile, Hunt says, “A lot of what we’re doing is … [playing] defense during the [state] legislative session.”

The same could be said, though, for Virginia’s community banks, which won a three-year battle against the credit union industry last August after the SCC ruled that the Virginia Credit Union could not expand its membership to the Medical Society of Virginia, which would have included up to 10,000 people.

The dispute arose in 2019, when the state Bureau of Financial Institutions approved Virginia Credit Union’s request to offer membership to MSV members. The Virginia Bankers Association and seven community banks appealed to the SCC in protest, arguing that the credit union — which at more than 300,000 members and $5 billion-plus in assets is larger than many smaller banks — would have too great an advantage over community banks.

Bruce Whitehurst, president and CEO of the VBA, said in December 2022 that the MSV expansion could have meant up to 40,000 new credit union members, if the 10,000 physicians and their family members all joined Virginia Credit Union — a move he says would have been a threat to banks. “The banking industry is never going to be OK with expansion,” he says, “unless it’s a level playing field.”

But Hunt, who joined VACUL in 2021 after a tenure as executive vice president of government affairs and general counsel for the National Association of Federally-Insured Credit Unions, says that credit unions are “not a competitive threat to banks. Bigger banks are a threat.”

Virginia Bankers Association President and CEO Bruce Whitehurst says the banking industry is “never going to be OK” with credit union expansion without an even playing field. Photo by Caroline Martin
Virginia Bankers Association President and CEO Bruce Whitehurst says the banking industry is “never going to be OK” with credit union expansion without an even playing field. Photo by Caroline Martin

Fixing financial deserts

In June 2022, the U.S. House of Representatives passed the Financial Services Racial Equity, Inclusion, and Economic Justice Act. Sponsored by U.S. Rep. Maxine Waters, D-California, the act is intended to increase access to financial services in underserved communities. An identical bill was introduced in the Senate in September 2022 by U.S. Sen. Alex Padilla, D-California, but was paused in committee. “I am proud to introduce this legislation to allow all federally chartered credit unions to expand their field of membership to underserved areas from the credit union member business lending cap,” Padilla said on the Senate floor.

Supported by the Credit Union National Association, the legislation would allow federally chartered credit unions to add underbanked areas to their fields of membership. It expands the definition of “underserved” to include any area more than 10 miles from a financial institution’s branch office. With banks closing many physical branches in response to the growth of electronic banking, CUNA says that more than 750 census tracts in the U.S. are now “financial deserts.”

“I would love for everyone in the commonwealth to have the opportunity to join a credit union,” Hunt says. “There are many people in banking deserts in the state.”

Also, she says, banking and credit union legislation often have bipartisan support, although in the divided U.S. and Virginia legislatures, “it tends to take longer to debate issues. It’s more an issue of priority-setting.”

Whitehurst agrees: “In Virginia, we’ve enjoyed the ability to work on both sides of the aisle. There tends to be a lot of agreement on economic issues.”

Often, state-chartered credit unions seek the same powers as their federally chartered peers after passage of federal legislation. In the 2022 General Assembly session, Del. Jeion Ward, D-Hampton, sponsored HB 1314, allowing any state-chartered credit union to expand its field of membership to include individuals and organizations in one or more underserved areas. The bill was continued to the 2023 session by the House Commerce and Labor Subcommittee.

Giving no ground

Whitehurst says that banks would only accept a major change in field of membership expansion if state-chartered credit unions are taxed — and in Virginia, credit unions could switch to federal charters to avoid new taxes, he notes. “You’ve got something that’s broken from a policy perspective.” Credit unions do not have to pay federal or state corporate income taxes, while banks in Virginia do, although credit unions are responsible for paying real estate and personal property taxes, the VACUL notes.

That’s the crux of the banks’ argument, that nonprofit credit unions operate under easier rules than community banks do, with a much lower tax burden. “Credit unions are exempt from some regulatory measures,” says Steve Yeakel, president and CEO of the Virginia Association of Community Banks. “We feel like they’re moving away from their original charter.”

Yeakel adds that he sees credit unions gaining enormous financial ground on banks in recent years. In 1934, the Federal Credit Union Act was signed into law by President Franklin D. Roosevelt, authorizing federally chartered credit unions, and state-chartered credit unions were founded before that, including the Virginia Credit Union, chartered in 1928 by a group of state employees. As member-owned, not-for-profit financial cooperatives, credit unions offer similar services as banks, but tout a broader range of loans and savings services at a cheaper cost to members.

Traditionally, credit unions were open only to people with the same employer or residents in the same community or state. However, in the 1980s, federal and state-chartered credit unions began to gain more flexibility in accepting members, leading to larger memberships and assets, while still bypassing corporate income taxes. Today, Yeakel says, some credit unions can undertake major financing deals that many bankers view as a departure from credit unions’ initial missions.

As an example, he points out that McLean-based Pentagon Federal Credit Union, aka PenFed, is partnering with Goldman Sachs Group Inc. on an $847 million private construction loan for The Wharf, a waterfront development in Washington, D.C. Also, in other states, credit unions have purchased community banks, making 13 acquisitions nationwide during 2022.

Despite these disputes, the short General Assembly session — with a divided legislature facing elections this fall — is largely a time to let sleeping dogs lie, Whitehurst says. “In a short session, [legislators] don’t like to see industry vs. industry.”

Crypto and cannabis

If the central question of membership expansion is on hold, that doesn’t mean all banking legislation is. For instance, Hunt’s paying close attention to credit unions’ rights regarding cryptocurrencies.

According to CUNA, “even in a more regulated, consumer-friendly form, digital assets such as stablecoins and retail digital currencies represent an existential threat to credit unions’ deposit funding.”

In essence, cryptocurrencies don’t fall under the governance of the Federal Reserve to authenticate value or regulate transfers, although the Biden administration and members of Congress are taking action to rein in the growing industry.   

Following the late 2022 implosion of crypto exchange FTX, in which founder Sam Bankman-Fried was indicted on money laundering charges and federal fraud offenses, U.S. Sen. Elizabeth Warren, D- Massachusetts, and U.S. Sen. Roger Marshall, R-Kansas, filed legislation in December 2022 to close some loopholes in cryptocurrency that create security risks related to international money laundering.

Meanwhile, in Virginia, banks gained the right in July 2022 to provide customers with “virtual currency custody services” — in other words, cryptocurrency assets that exist only on a blockchain — as long as the banks have proper risk-management protocols.

Hunt says one of her goals is to achieve similar state legislation for Virginia-chartered credit unions. According to the National Credit Union Administration, federal credit unions can use distributed ledger technology used to support cryptocurrencies if they stay within federal regulations. A House of Delegates bill permitting credit unions to provide cryptocurrency services passed unanimously in the Committee on Commerce and Energy in mid-January.

Other areas of legislative interest for banks and credit unions include marijuana legislation, both federal and state-level, particularly regarding financial institutions. A major issue for banks and credit unions is the risk of criminal prosecution under federal laws if they allow marijuana businesses to create banking accounts. At the end of 2022, the Senate failed to pass the Secure and Fair Enforcement Banking Act, which would have created a safe harbor for such transactions. The bill has bipartisan support and proponents are hopeful it will pass in 2023.

In 2023, Virginia’s General Assembly is expected to take up some medical marijuana legislation, although full regulation of
retail marijuana sales is likely to be put on pause until 2024, lawmakers have said. A bill filed by Republican Del. Keith Hodges would permit the Virginia Cannabis Control Authority to issue marijuana retail licenses in July 2024, and in July 2023, some pharmaceutical and industrial hemp processors would be allowed to sell cannabis products to adults age 21 or older. A second House bill would allow the authority to issue marijuana licenses as soon as Jan. 1, 2024, but no sales could occur before Jan. 1, 2025.

Cybersecurity and private deposits are also important matters for credit unions, notes Brian Schools, president and CEO of Virginia Beach-based Chartway Federal Credit Union, a federally chartered institution that’s also a VACUL member. In December 2022, VACUL members met with Gov. Glenn Youngkin to discuss an array of subjects, including membership growth, cryptocurrency and the possibility of allowing state-chartered credit unions to accept municipal deposits. It’s a VACUL priority to authorize state credit unions to hold public deposits, just like federal credit unions and banks already can.

Hunt says that credit card fraud costs are also a significant issue for credit unions, which pay part of the fees to customers who were victims of fraud, along with the card companies, but fraud impacts all financial institutions.

According to a September 2022 study by fraud prevention software company Featurespace and payments news site PYMNTS, 62% of all financial institutions reported an increase in fraudulent transactions in 2021 and 2022, but smaller banks and credit unions — holding between $5 billion and $25 billion in assets — suffered the most, incurring higher costs per incident. About 66% of smaller institutions reported such transactions.

As for banks, “we are tracking what may or may not happen with corporate income tax,” Whitehurst says. In December 2022, Youngkin proposed a corporate tax cut from 6% to 5%, as well as a 10% income tax deduction for small businesses. 

Tax cuts are the way to grow

Virginia’s finances are in excellent shape, paving the way for the General Assembly to agree with Gov. Glenn Youngkin that it’s time to cut taxes in the commonwealth. It’s your money, not the government’s, and the government has collected too much of it over the last few years.

In a snapshot, Virginia’s coffers are full. The commonwealth ended fiscal year 2022 with a $3.2 billion cash surplus and is poised to end fiscal year 2023 with a $3.6 billion surplus. Our revenue reserves are set to reach nearly $4.3 billion by the end of the 2023-24 biennium, more than the constitutionally targeted 15% of revenues. These numbers show that Virginia is extraordinarily well-positioned to deliver both necessary investments in critical services and badly needed tax cuts for Virginia’s families, individuals and local businesses.

A surplus in government happens by collecting more taxes than appropriated expenses. As part of the formulation of the governor’s current budget proposal, long-serving and highly experienced budget experts prepared five-year projections of revenues and expenditures that anticipate a recession beginning this year and incorporate inflation and ongoing growth in critical education and health care programs. Plainly put, Virginians are overtaxed, and it’s time our leaders take a good look at bringing down taxes to make the commonwealth competitive with our neighbors.

Last year, the governor and General Assembly funded a record $3.1 billion in new investment for public education, including double-digit raises for schoolteachers and funding for school infrastructure across Virginia. Law enforcement agencies across the commonwealth saw $400 million in new funding for training, equipment and recruitment. Landmark commitments to economic site development were included to make the commonwealth more attractive to large-scale investments from global companies like Lego, which selected Chesterfield County for its first U.S.-based manufacturing facility.

Under prudent assumptions — which include an economic recession this year — ongoing state tax revenue is expected to exceed ongoing spending by $1.8 billion and more in future budget cycles, well beyond what is required to support the proposed tax relief package.

Overtaxed Virginians are voting with their feet and their wallets, moving to states with lower taxes and a lower cost of living. The Wall Street Journal ranked our targeted competitor states (Florida, Texas, North Carolina, South Carolina, Tennessee and Georgia) first through sixth for net population growth from domestic migration from July 2021 to July 2022. Meanwhile, Virginia ranked 42nd in the nation, losing nearly 24,000 people to domestic migration in that year alone.

Census data shows that every year for the past nine years more Virginians have moved to other states than have moved from other states into Virginia, totaling 132,000 in net domestic out-migration. Over that same time period, net domestic migration increased Florida’s population by 1.8 million. North Carolina’s population grew by 671,000.

When Virginians relocate, they take their livelihoods with them, at the expense of the commonwealth. IRS data show that, since 2013, Virginia has lost $9 billion in income due to the net loss of Virginians. The same IRS data shows that North Carolina, our closest competitor, gained $17.6 billion in income from former residents of other states.

Three of our competitor states have no income taxes and the other three have been strategically lowering tax rates and have attracted people to them.

Gov. Youngkin has proposed reducing tax rates for both individuals and businesses to enhance our competitive position and grow the economy. All taxpayers in Virginia will benefit from the $5 billion package. The proposed reduction in the top individual income tax rate will benefit 86% of Virginia taxpayers. Paired with an increase in the standard deduction to $18,000 for married taxpayers ($9,000 for singles), 47,000 Virginians will be removed from the income tax rolls. This plan also reduces taxes on a veteran’s military pension regardless of age, increasing the after-tax income of 152,000 Virginia veterans that will stay in Virginia to retire or start their second careers.

Reduction in the tax rate on businesses in Virginia from 6% to 5% will catapult Virginia to the second lowest rate among competitor states. Other proposed business tax changes, such as the Qualified Business Income deduction, will reduce the tax bill for 450,000 small business owners.

Our unprecedented financial strength allows us to reduce taxes while providing resources for additional spending priorities. The governor’s proposed budget also provides $2.6 billion for spending that complements our economic development strategy and enhances Virginia’s quality of life. This includes $450 million for additional business site development, research to drive innovation in small modular nuclear reactors, $230 million to transform our behavioral health system, retention and performance bonuses for our teachers, recruiting bonuses to encourage more men and women to enter law enforcement, resources to allow more nurses to be trained and ready to serve in our health care facilities, and $537 million to preserve the treasure that is the Chesapeake Bay.

We must reverse the trends of the past decade in Virginia to create a more prosperous commonwealth. By creating a more competitive tax code, Virginia is sending a clear message to individuals, families and companies: We are competing to win.

Virginia Secretary of Finance Stephen E. Cummings took his oath of office on Jan. 15, 2022. He oversees the state Department of Accounts; Department of Planning and Budget; Department of Taxation; and Department of the Treasury along with the Virginia Resources Authority and Virginia Board of Accountancy. He previously served as president and CEO of Mitsubishi UFJ Financial Group Inc. (MUFG) in the Americas.

TowneBank completes Farmers Bank acquisition

Suffolk-based TowneBank has completed its acquisition of Windsor-headquartered Farmers Bankshares Inc., the parent company of Farmers Bank, TowneBank announced Tuesday.

The $56 million deal created a combined company worth $17.5 billion in total assets, loans of $10.9 billion and $14.5 billion. It adds Isle of Wight and Southampton counties to TowneBank’s service area, as well as expanding revenues for Towne Insurance.

The merger was announced in August 2022 and Farmers shareholders approved the deal in December 2022. The merger was effective on Jan. 13 and Farmers Bank locations will operate as “Farmers Bank, a Division of TowneBank” until mid-April when the core systems and operations will be converted to TowneBank’s.

“Our TowneBank family is delighted to have our long-time friends at Farmers Bank join us,” G. Robert Aston Jr., executive chairman of TowneBank, said in a news release. “We look forward to the expanded products and services we can provide to our growing member base through our partnership and the growth of our role as a community asset.”

The merger also solidifies TowneBank’s No. 1 market share position in Hampton Roads.

 

GMU names EVP for finance and admin

George Mason University has promoted Deb Dickenson to executive vice president for finance and administration, the university announced Monday.

Dickenson had been serving as interim senior vice president for administration and finance since June. In her new role, she will be responsible for universitywide leadership, strategic oversight and financial and operational management of the administrative and financial business units at the university. She will also collaborate with GMU’s board of visitors, office of the provost and academic and nonacademic leadership, as well as working with the university’s government relations team and elected and appointed leaders in Richmond.

“I’m so proud to be part of this community of Patriots making huge leaps forward for the university, our region and the commonwealth,” Dickenson said in a statement. “Alongside our outstanding leadership team, I will continue to work efficiently and effectively to increase support for Mason students, faculty and staff and ensure everyone has equal opportunity to thrive as part of a diverse and inclusive Mason Nation.”
Dickenson joined GMU in 2019 after 13 years at George Washington University. Before serving in her interim role, she served as vice president for finance. At GWU, she held roles such as assistant dean for finance, planning and fiscal operations and principal business officer.

Before she joined GWU, she served in senior financial positions at Marriott International Inc., Price Waterhouse LLP (now PricewaterhouseCoopers) and Arthur Anderson & Co. (now Accenture).

Stihl names finance VP

Virginia Beach-based chainsaw and outdoor power equipment manufacturer Stihl Inc. has named Uwe Hirsch its vice president of finance, effective Nov. 7.

Hirsch will plan, direct and control the company’s financial plans and will support IT operations and system implementations. He was most recently global vice president of finance, controlling and purchasing in the automotive aftermarket division of Bosch Automotive Service Solutions LCC, a subsidiary of German engineering and technology firm Robert Bosch GmbH. Before that, he was vice president of finance for Bosch Automotive Service Solutions.

“Uwe has a proven track record leading cross-functional transformation and development projects that achieve long-term target profitability, as well as overseeing and monitoring operational and strategic initiatives,” Stihl Inc. President and CEO Terry Horan said in a statement.

Hirsch has a business administration degree from Baden-Württemberg Cooperative State University in Stuttgart, Germany.

“Stihl is an iconic brand, known for its technological expertise and tradition of excellence,” Hirsch said in a statement. “I have a passion for collaboration and building teams and coherent, consistent and sustainable long-term strategies, and I look forward to contributing to the growth and success of this great company.”

The largest subsidiary of the global Stihl Group, Stihl Inc. employs more than 3,000 U.S. workers, with more than 2,800 in Virginia. Stihl supplies products for the U.S. and more than 80 markets worldwide.

TowneBank names president, regional banking director

TowneBank has promoted Brian Skinner to the newly created role of president and regional banking director for all of its markets in Virginia and northeastern North Carolina, the Suffolk-based bank announced this week.

“Brian is a dedicated member of the Towne family with a proven track record of leading both emerging and seasoned financial professionals to exceed their potential and enhance the success of our company,” TowneBank Executive Chairman G. Robert Aston Jr. said in a statement.

Skinner will also have executive oversight for several specialty banking lines: real estate finance, commercial real estate finance and automotive dealer finance.

He has been with TowneBank since 2007 and most recently served as head of Towne Financial Services Group, which oversees its non-banking business lines, including residential mortgage and wealth management.

Skinner previously was the company’s chief banking officer. Prior to that, he served as president for the Peninsula and Williamsburg markets.

He is a graduate of Christopher Newport University and serves on several boards, including those of An Achievable Dream and United Way of Virginia Peninsula.

Founded in 1999, TowneBank now has more than 40 banking offices throughout Hampton Roads and Central Virginia and in North Carolina. TowneBank ended 2021 with a net income of $215.4 million, a 48% increase over 2020. Total assets were $15.38 billion on average for 2021.

Keeping watch

The question of the quarter: Are we entering a recession? One key indicator of a future recession can be inflation, which hit a 40-year high this year.

Between June 2021 and June 2022, the consumer price index increased by 9.1%, according to the U.S. Bureau of Labor Statistics. One of the first tangible signs for many consumers were gas prices at the pump, which exceeded $5 a gallon earlier this year, although prices dipped to a statewide average of $3.45 per gallon in Virginia by mid-September.

The Federal Reserve Bank has also taken actions to cool inflation this year, enacting two 0.75-point interest rate hikes in a row, after two years of 0% interest rates during the pandemic.

The Fed did this to break the “grip of inflation,” as Atlantic Union Bank CEO John Asbury puts it, designed to create “demand destruction” for products with soaring prices.

In late September (after this issue went to press), the Fed’s voting body was set to meet, with some traders predicting that it could raise interest rates again by as much as a percentage point.

Although the word “recession” strikes fear in the hearts of Americans who suffered losses during the 2008 Great Recession, the technical definition is two consecutive quarters of decline in GDP, which occurred during the start of the COVID-19 pandemic, as well as other periods throughout the past 25 years.

In a Henrico County town hall meeting in June, Richmond Fed President and CEO Tom Barkin said, “Historically, eight of the last 11 Fed tightening cycles have been followed by some sort of a recession.” He predicted that supply chain and labor shortage issues would subside in coming months. “That means inflation should come down over time,” Barkin said, “but it will take time.”

Nonetheless, Virginia businesses and bankers are keeping a watchful eye on their budgets as they plan for the end of the year and 2023.

“We’re in a little bit of new-ground territory,” says Brian Schools, president and CEO of Chartway Federal Credit Union, noting the combination of inflation and labor shortages in today’s market. “But I will tell you the loan volume has been really good of recent.”

This counteracts worries that rising interest rates would cause a slowdown in loans, both on the consumer and commercial side. What bankers have seen so far in the marketplace is bucking that logic.

“It’s an intuitively natural assumption that as interest rates rise, loan demand will go down,” says Virginia Bankers Association President and CEO Bruce Whitehurst. However, he notes, “loan demand is pretty good on the commercial side. Everyone’s looking for the potential of a slowdown but [we’re] really not seeing it at the moment.”

Thomas Ransom, Truist’s Virginia regional president, says his commercial and mid-market customers are “generally positive” about the economic outlook but still watchful. Photo by Shandell Taylor

Strong commercial demand

Coming out of COVID, banks expected business would be a little soft, says Cecilia Hodges, M&T Bank’s regional president for Greater Washington and Virginia. But her bank has seen just the opposite.

“We’re having a really strong year in all areas of our business right now,” she says. “Demand for commercial loans is very strong. Business banking activity has been very strong.”

In fact, one trend that has emerged in commercial loans has been that more businesses are borrowing now to expand their inventories because they believe prices may continue to rise with inflation — or they’re trying to avoid even higher interest rates in the months to come. More companies are also “doubling down” by making capital investments, considering acquisitions and growing their businesses, Hodges adds.

Truist’s commercial and middle-market clients remain “generally positive” about current economic conditions, says Thomas Ransom, the bank’s Virginia regional president, but there are also growing concerns about labor shortages and margin pressure amid rising interest rates and higher input costs.

“Given all of this, we remain generally positive about our prospects for continued loan growth,” Ransom says. “At the same time, we acknowledge that there’s increased uncertainty associated with the softening economic environment, which may cause loan growth to soften, but currently we’re continuing to help our clients understand the marketplace and their options.”

In the University of Michigan’s U.S. consumer sentiment survey for August, 55.1% of people polled felt positively about the economy, marking a three-month high after June’s low of 50%, and consumers predicted prices to increase at an annual rate of 3% over the next five to 10 years.

Asked whether now is the right time for businesses to take out loans, Hodges says it depends on how a particular company is faring in the current economic environment. Some businesses thrived during the pandemic, adopting new technologies and figuring out ways to increase productivity and demands for their products and services. Other businesses, though, have felt more pressure to increase wages and pricing, she says.

“For some of those companies, it’s been a struggle for them, and it’s been hard for them to spend money and make investments,” Hodges says.

Ransom says Truist has seen its corporate finance and mergers and acquisitions (M&A) business pick up this year.

“We are actively having conversations with our clients to understand how inflation and rising rates impact their businesses so that we can work with them on ways to strengthen their companies’ positioning for any down cycle,” he says.

Atlantic Union has also seen some commercial clients rely more on cash reserves when investing in new inventory.

“We’re starting to see some borrowers use more cash instead [of taking out loans],” says David Ring, an executive vice president and commercial banking group executive with Atlantic Union Bank. “For equipment purchases in particular, [clients are] starting to use cash rather than financing or even vendor financing because it’s a more productive use of their cash.”

On the consumer side

When looking at consumer loan demands, two areas have become sticky for low- to middle-income consumers in particular: mortgages and car loans. The two-point increase in interest rates since the start of the year has caused a slowdown in home sales and mortgage applications, says Ryan Price, chief economist with Virginia Realtors.

In June, home sales dropped by nearly 19% statewide compared with June 2021, Virginia Realtors reported, affecting the whole state, with the largest declines in the Shenandoah Valley, the Northern Neck, the Eastern Shore and suburban Richmond and Northern Virginia.

Higher interest rates are “complicating a lot of potential buyers’ — and even sellers’ — budgets,” Price says. “It’s adding a lot of cost to the mortgages, and it’s also reducing their purchasing power.”

Credit unions in particular may start to feel the effects of a decline in home loan applications. Mortgage lending typically accounts for about 50% of all credit union loans, including first mortgages, refinances and home equity lines, says JT Blau, chief advocacy officer of the Virginia Credit Union League, which represents 108 member-owned credit unions.

“We’re hearing from a lot of our credit unions that originations or new mortgage loans have reduced fairly quickly,” he says. “This is due to the rise in interest rates and home prices. It’s making that monthly payment harder and harder to obtain for people.”

Steven Yeakel, president and CEO of the Virginia Association of Community Banks, says bankers are still watching how interest rate hikes could affect consumer loan demands for the rest of 2022 and 2023.

“Certainly, what’s going on now does not compare to the concerns over the economy in 2019 and 2020 or the concerns in banking-customer relationships and the challenges hitting consumers primarily,” he says. “[Community banks are] just very carefully examining the data that’s there and staying in close touch with borrowers and ready to make the adjustments as they present themselves.”

Hodges notes that M&T’s homebuilding clients have also reported fewer people visiting model homes or looking to purchase. Plus, the construction of new homes is slowing down because of affordability issues, mostly around mortgage rates, Asbury adds.

On the commercial real estate side, Atlantic Union is seeing large real estate sales starting to slow down, but that can work out well for banks, Ring says. “That stuff is staying on our books longer, which is really good for us and seeing our balances be more stable.”

Similarly, refinancing has slowed down since interest rates rose above zero, VBA’s Whitehurst says. In August, the national Mortgage Bankers Association reported that mortgage applications and refinancing fell to their lowest levels in 22 years.

“If someone is interested in refinancing their home, they might be now at a rate that is higher than what they currently have, and that can make that not a good option for people,” Blau notes.

The mortgage slump has not carried over to auto loans, though, at least in the state’s credit unions. As of the first half of 2022, auto loan balances grew 12%, Blau says, and if the pace continues, it would be the biggest year for auto loan growth since 1994. In Virginia, according to a Federal Reserve report released in August, the average auto debt per capita was $5,210.

However, Blau notes, there’s still plenty of uncertainty in the vehicle market, from microchip disruptions to fluctuating gas prices.

“Inflation plays a huge part in the household budget,” he says. “Our members are weighing gas, car payments, all these factors, along with all the other elements of a budget. Finding a car payment that works can be difficult.”

Credit card crunch

Although some consumers may be wary about taking out loans, they’re increasingly leaning on credit. In the second quarter of the year, credit card balances jumped by 13%, the biggest year-over-year spike in 20 years, the Federal Reserve Bank of New York reported.

“People are tapping into credit to cover for some of those inflationary pressures,” Schools says. M&T is also starting to see balances creeping up on consumer credit cards, Hodges says.

“We’re seeing a little bit of the more moderate-income individuals and families are getting stretched thin due to inflation, and they’re starting to rely on credit for their needs,” she says. “The higher-income individuals and families are still sitting on a fairly nice cash cushion, and they really haven’t been impacted.”

What will be important to watch is credit scores, Blau says, because those heavily impact consumers’ ability to get loans with desirable interest rates. Asbury says, though, that Atlantic Union has seen an absence of credit defaults or other payment problems.

“As a bank, one of the things that is the best indicator of health is what are loan losses and credit defaults doing?” he says. “And the answer is they’re not doing anything.”

Another benchmark that banks will need to keep an eye on as interest rates continue to rise is deposit levels. In September, the Federal Deposit Insurance Corp. (FDIC) reported that deposits fell 1.9% to $19.6 trillion in the second quarter of the year, the first time that deposits have declined since 2018, although the report notes that stimulus money during the pandemic prompted “unprecedented growth” in deposits.

In late 2020 and 2021, “we all lived in an excess deposit world, perhaps from stimulus money,” Schools says. “Well, that has all subsided and now it’s about [banks] marketing for deposits.”

Hodges notes that competition for deposits was “pretty fierce” when interest rates were at zero, and now is even more so.

“In this rising rate environment, [deposits are] extremely valuable to banks, and it’s also opened up an opportunity for businesses to actually shop for rates,” she says. “All banks are hungry for deposits right now.”