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West Virginia Banking healthy despite recession

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Two banks on opposite ends of the state experienced different mortgage markets during the recent recession, but both expect to see strong markets in 2013.
The Eastern Panhandle is digging out from under the bursting of the housing bubble a few years ago, but in Cabell County, there was no bubble, so the mortgage business has gone well thanks to low rates.
"We didn't really see the significant runup (in housing prices), so we didn't see the decline," said Sam Vallandingham, senior vice president of First State Bank of Barboursville.
"In 2013 we expect to see continued growth. We have been blessed with a good mortgage market which has allowed us to earn in down economic times."
Banks in West Virginia are typically relatively healthy compared to surrounding states. Stephen Morris, CEO and president of Jefferson Security Bank, said West Virginia's banking industry is, on the whole, "very healthy and robust."
"Since 2007, over 500 banks have been closed by the regulators, only one has been closed in West Virginia, and I don't think that had anything to do with the recession," Morris said. "As a state, we've done fairly well."
Some of that could be because many parts of the state are insulated from national boom-and-bust cycles, he said.
"When we have setbacks, everybody seems to overreact. Bankers have a tendency to tighten credit standards. Regulators tend to use less judgment and be more black and white," said Morris, who also serves as chairman of the West Virginia Bankers Association.
At the regional level, Morris said banks in the Eastern Panhandle have been stable and benefited from their proximity to the Washington, D.C. and Baltimore metropolitan areas.
Jefferson and Berkeley counties have seen growth from people who had considered buying homes in Virginia or Maryland but chose West Virginia instead because housing is less expensive, Morris said.
"A lot of my neighbors work for the government or are government contractors," Morris said.
But as the housing market in the D.C. area soured, it went bad in the Eastern Panhandle, too, and loan demand declined, Morris said. That can be seen in the bank's loan-to-deposit ratio, which went from 78 percent to 50 percent, he said.
"We're not experiencing a lot of demand, but we do hope that is going to change," he said, adding, "We're really just trying to wait and see what's going to take place with the new Congress."
In 2013, Morris said, bankers will be playing the waiting game as the economy crawls back to what it once was.
"Banking in West Virginia is very safe and very solid," Morris said. "We have a great future ahead of us. The thing we need to do is just, we're at a time where you have to just wait things out, and fortunately we've been able to do that."
On top of the downturn in the real estate market, Jefferson Security Bank and other banks must deal with increasing regulatory costs from Dodd-Frank, the Consumer Financial Protection Bureau and possibly from the international Basel III capital requirements.
"We've been able to absorb those costs to this point, but they are quite burdensome. Many banks have found that their compliance costs have doubled, tripled or even quadrupled," Morris said.
Bankers are concerned that fewer than half the regulations required by Dodd-Frank have not been written yet, Morris said.
Some regulatory changes have helped, however. The JOBS Act allowed Jefferson Security Bank to de-register with the Securities and Exchange Commission, which saved the bank a significant amount in filing fees and allowed it to increase its number of shareholders, Morris said.
While smaller banks that concentrate on the housing market in the Eastern Panhandle have struggled, the larger banks that put together $15 million or $20 million loan packages are doing well, Morris said.
J.P. Morgan Chase, which is based in Columbus, Ohio, has 31 branches in West Virginia, and it is preparing those branches to offer better service to its commercial customers.
"We are giving more training to our bankers now than ever before when it comes to our business customers. We want to have a specialist in every bank," said Sharon Parsons, senior vice president and district manager for western West Virginia.

Jim Ross can be reached by email at jross@statejournal.com. Taylor Kuykendall can by reached at tkuykendall@statejournal.com.