In recent days, Pueblo Bank & Trust has been running an unusual ad on local stations. The message: The federal government has been pushing bailout money on healthy banks as well as sickly ones -- but PB&T doesn't need rescuing, because it's in sound financial condition.
This approach is echoed by a letter from PB&T president and CEO Bill Tandy that's posted on the enterprise's website. It's a long, historical treatise on financial crises throughout American history, and why PB&T, which was founded in 1889, and the vast majority of its fellow institutions are well positioned to survive this particular meltdown. "I think it would be very safe to say you can take PB&T and the banking system generally off your list of things to worry about," he writes. "When this period passes -- and it will -- rest assured the media has, or will create, something else for you to worry about."
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A message from Bill Tandy (President and CEO)
With the failure of Indy Mac and the daily articles we see regarding loan problems at Fannie Mae and Freddie Mac, there is concern among the public about the health of the financial system. But on a more personal level, people are increasingly questioning the financial health of their own banks. As usual, we can rely on the media to focus in tightly on what is sensational, utilizing the truth, facts, and perspective only when they are convenient to the story. Thus, I thought I'd take a moment to address the health of both the banking system and Pueblo Bank and Trust.
To more accurately understand where we are today in terms of the financial system and the underlying economic conditions, it is probably helpful to look at history. Over the last 120 years there have been, by my count, at least nine major banking crises or economic recessions that have moderately to severely tested the health of the banking system.
In my estimation, the most severe of the nine banking crises was the "Banking Holiday" of 1933. During the period of March 6 through March 10, 1933, President Roosevelt closed literally every bank in the United States, shortly after which the F.D.I.C. was created. During the period 1929 to 1933, which led up to the "Holiday", 9,000 banks had suspended operations, and 4,000 banks failed, with resulting losses to depositors (all of whom were uninsured) of $1.3 billion (roughly $22.4 billion in today's dollars). At that time there was no insurance mechanism or safety net for depositors. A closed bank then, to a depositor, meant you just lost all your money.
Probably the next most severe banking crisis was the real estate crash, which began in Texas and spread to New England and finally to California, circa 1983 to 1993. During this time frame 1,547 banks failed, and over 2,000 other institutions were merged out of existence before they might otherwise have failed. Cost to taxpayers? Zero, thanks completely to the assessments taken by the F.D.I.C. from the surviving banks to fund these losses.
The banking system in the United States also paid for a huge share of the savings and loan crisis as well, for reasons still unbeknownst to bankers. In fact, the U.S. taxpayer has never paid a single penny for a bank failure since the inception of the F.D.I.C. Now, if that fact comes as a surprise, please remember the same people that neglected to report that fact or chose to mislead you in another direction are the same people who are currently reporting on today's financial crisis.
All of which brings us back to today. Former F.D.I.C. Chairman (1985-1991) and MSNBC financial analyst Bill Seidman recently suggested that over the next couple of years, we may see 100 or so bank failures. I think that is about right. If you look at history, Bill Seidman, much to the consternation of many in Congress and the media, not only has been uncanny in his predictions, but also has infuriated these same people for his refusal to worship at the alter of political correctness. You will not find a straighter shooter or brighter analyst on the topic. At the other end of the spectrum, the mainstream media, as they often do, continue to hit the panic button and recently opined that "about 300 banks will fail over the next three years". But the funny thing is, even if you believe the media number, it doesn't even remotely approach the 4,000 closings in the "Holiday" and the 1,500 closings in the crash.
In addition to history and perspective, it should be noted the F.D.I.C. today is financially the strongest it has been since its inception. The banking industry is collectively the best capitalized it has been since the inception of the F.D.I.C. Bank management and risk management inside the banking industry are probably the strongest they have ever been. Regulatory oversight and supervision have greatly improved in the last 15 years and are arguably as good as they have ever been. Regardless of what comes our way, the industry as a whole is ready.
So, how is Pueblo Bank and Trust? Well, the short answer is, we're good.
As the Bank's President and CEO, having been the CEO who successfully took on a problem bank in Texas during the real estate crash noted above, and with 21 years experience as a bank CEO, I can honestly tell you the answer is "good."
PB&T currently ranks in the top 6% of banks in the nation in terms of being strongly capitalized, which is the single best indicator of survivability during times like these. We currently rank in the top 1% nationally in terms of being liquid, which is another very important indicator. Over the last ten years or so, we have ranked in the top 1% in the nation for profitability.
We don't have any subprime loans. We don't have any brokered deposits. We don't have most of the problems or issues the media wants you to wring your hands over.
Do we have problem loans? We sure do. And by the way, that can be said for nearly every bank in Colorado and most of the banks in the country. Are our problems more than we normally deal with? They sure are. Have we taken losses as a result? We sure have. Not only that, there is a reasonable chance we'll lose money in 2008 as a result.
During the first half of 2008, we put over $10 million in our loan loss reserve, because the Board and Management continue to be realistic about the loans we have, the real estate market we're in, and the slowness of the economy. We are aggressively provisioning for loan losses both real and potential. Why? That is just the prudent thing to do, period.
The good news, even after having expensed $10.4 million in the loan loss reserve during the first half of 2008, is that we lost only $4.9 million. Said another way, if times were normal, we actually made $5.5 million for the first half of 2008, which would otherwise, once again, put us on track to be one of the top 1% most profitable banks in the United States.
But times aren't normal. The point here is the Bank's underlying profitability is very strong, which means that in case of a hit, we are better positioned to be back to normal more quickly than the overwhelming majority of banks.
Our biggest challenge is we have a good number of construction and development loans at a time when construction and development have slowed to a crawl. But the majority of these loans are to people we know and have worked with for a very long time. We, and they, have been there together through the ups and downs of real estate and the economy in the past, and we'll get through this period as well. We will face other major downturns in the economy at some time in the future -- they're as predictable as the sunrise.
Earlier I mentioned that there have been nine banking crises over the last 120 years. I picked 120 years because, as of January 1, 2009, PB&T will be 120 years old. This means we, as a banking institution, have been through every single one of those nine banking crises, including the "Holiday" that wiped out 4,000 banks and the crash that claimed 1,500 more. We've been through the Great Depression, World War I, World War II, the Korean War, the Vietnam War, the Spanish-American War, four stock market crashes, 22% interest rates, 14% inflation, and 15% unemployment.
So, with all this as a backdrop, and with all due respect to the lofty thinkers in the media and their relentless attempts to keep you in a constant uproar, I think it would be very safe to say you can take PB&T and the banking system generally off your list of things to worry about. When this period passes -- and it will -- rest assured the media has, or will create, something else for you to worry about.