By Margot C. Lester
Staff Writer
Chapel Hill — With banks still sputtering after last year’s huge federal bail-out – including three bank failures already this year – it would be easy to think that all financial institutions are on the ropes. But one local lender is beating the odds with high reserves and a new branch on the way. To get the scoop, The Citizen spoke with Larry Loeser, president and CEO of Chapel Hill-based Harrington Bank, recently named 2008 Large Business of the Year by the Chapel Hill-Carrboro Chamber of Commerce.
Q: You’re on the record as saying the bank is healthy and lending. How are you able to do that when so many others are being more guarded?
A: Part of it is we’re in a great community. Chapel Hill-Carrboro is unique. I don’t expect we’ll have any problems here because it’s such an economically strong and pretty diverse, economically speaking, community. The university and hospital provide strong anchors for employees and the school system is a major contributor to the economic strength of the community. We will have problems – there’s no way we can be immune in an historic recession, but we won’t see them as much.
Q: You’ve mentioned expanding into Cary. Is that still happening and if so, when?
A: Yes; at Hwy. 55 at High House Rd. But it’s gone slower than we would have liked because of zoning approvals. But we’re working with a developer partner who’s going as fast as they can. We could probably get that branch open early in 2010. That timing is fine with us since we opened two last year. We’re using the extra time to stabilize those new branches at MLK Boulevard. in Chapel Hill, and in north Raleigh in Falls River Towne Center, north of 540.
Q: Has your mortgage business slowed with the economy?
A: No. In our mortgage activity, we’ve seen a huge uptick because of declining rates. We’re busier than we’ve ever been, with 30-year mortgages under 5 percent.
Q: How many foreclosures did the bank have in 2007 and 2008?
A: We’re in the secondary market and never participated in subprime mortgages of any sort. Our mortgages are to good, solid borrowers. Foreclosures have not been an issue and won’t be for us.
Q: What’s your loan-loss reserve?
A: All banks have a loan-loss reserve. We started from scratch and are fairly new, so we reserve very heavily since we don’t have any loss experience to base on. We’re conservative. Our loss reserve by industry standards is extremely high – 1.65 percent of total loans. Any losses we have, we’re well reserved for. Historically, we have very few losses.
Q: Last month, BB&T announced decreased profits attributed to defaults by homebuilders and developers. How is Harrington faring?
A: We do lend to homebuilders and have some who are “on the ropes†because home sales have been slow for a good year and a half. Builders’ basic business model is to build and sell in a short time. They’re not capitalized to hold onto homes for a year or more. We are financing new home construction – that even surprised me a little bit. There are homes selling out there. The press doesn’t pick that up because it’s hard to find. There’s a small number of builders who were working on selling down inventory last year and are now down to a point where they can have product out of the ground to meet lower demand for the spring selling season.
Q: What percentage of assets are construction loans?
A: It’s about 10 to 20 percent.
Q: What kind of businesses are seeking loans and are they getting them?
A: Loan demand is down because of the uncertain nature of the economy. We’re still having new loan requests and making loans, but requests are not at the rate they were last year before the fourth quarter. It seems to be about the same mix of businesses. We’re doing a restaurant loan, a commercial building – so it’s not completely the end of the world. It may seem like it’s close to it. But if you have faith in the free-market economy, you know things will come back around.
Q: There are several initiatives in the community for buying local. As CEO of a local bank, what’s your definition of local?
A: For us, we focus mainly on Chapel Hill-Carrboro when we say local. I have a sticker on the sidelight to my office that says “Buy Local.†We’re on that train – from the owner on down through the board of directors and employees. We can do that better than large competitors can. We would extend into Durham and Chatham counties and parts of Wake County, but we’re primarily here. We were founded here and our primary shareholder lives in Chapel Hill. It makes the economy stronger and builds infrastructure. That ultimately makes it a better place to live. We thoroughly enjoy being located in the Chapel Hill-Carrboro community. It’s a perfect fit for us and our style of banking. We’re strongly service oriented and dependent on the trust and knowledge of the community. We like to grow our business by referrals. This is a great place for all that.
Q: Do you have any advice for folks who’re worried about the economy?
A: The economy is cyclical. If you’ve been around for a while, you’ve seen the ups and downs of the economy, you know the ups won’t last forever and neither will the downs. You try to be a little bit conservative in the up and the down times.
Have some reserve cash or credit for the down times. You don’t want to get fully invested in higher-risk investments when markets are going up. Hopefully, most people have those reserves and the ability to cut expenses when the economy is down. We saw an increase in savings accounts at the end of summer, beginning of fall when the economic news started to get bad. We feel the economy will start back up this year and continue on from there. In the first quarter, there will be lots of bad news out there. I don’t think there’s a need for anybody to get too concerned.