First Reliance able to weather the storm

FLORENCE — For most people outside of the financial and banking arenas, the recent recession seemed to come out of the ether.

But Rick Saunders, president of First Reliance Bank, said the signs of an impending economy downturn were seen more than four years ago.

AT A GLANCE

Name: First Reliance Bank
Established: 1999
Address: 2170 W. Palmetto St., Florence
CEO: Rick Saunders
Employees: 145
Specialty: Banking
Web: www.firstreliance.com

As a result, the 11-year-old community bank made some changes in its operations to avoid severe losses, he said.

“We started seeing economic signs as early as 2006,” Saunders said. “The challenge is with seeing the signs and not necessarily feeling them.”

“Getting the ship to turn when you start seeing those signs of early trouble is very difficult because you feel you might be misreading the signs, or you might be missing an opportunity to make a profit.”
First Reliance officials began discussing loan concentrations and the bank’s focus on construction and development financing. They decided the bank was too concentrated and overexposed in certain loan areas and decided to pull back, Saunders said.

“We did get the ship turned, but we didn’t do it as fast as we would have liked,” he said. “We still left 2009 with some bruises, but there’s not a bank around without some sense of feeling of what took place. The the good thing is that we reduced our concentrations enough so that we never put our company at risk. While 2009 was a challenge, there never was a point where we felt we jeopardize the ultimate health of our company.”

First Reliance, a community bank with branches in Florence, Myrtle Beach and Charleston, was impacted by the recession much differently than larger banks such as Bank of America.

Large banks are better able to withstand short-term bounces in the economy, Saunders said. This is because those banks tend to have access to larger pools of capital.

This recession was unique in that the collapse started with the large banks, he said.

“This is the first economic recession, maybe since the Depression, that has had a significant impact on the large financial institutions,” Saunders said. “This particular recession started with the big guys. They were the ones who led the charge that ultimately led to an over-inflated real estate market. When this whole thing collapsed, they were the first domino that fell over.”

While community banks don’t have as much access to capital, such banks are able to withstand a bleak economic climate because of limited geography.

The coastal markets of Myrtle Beach and Charleston were the most challenging for First Reliance, Saunders said.

“We haven’t seen a large volume of consumer delinquency. Most of the impact we felt is centered around small operating companies who did not recession-proof their balance sheets and construction companies,” he said. “Construction is where we felt the bulk of the pain in 2009.”

So far this year, things are starting to look up. Saunders said the bank has seen the volume of problem loans come to a near stop. What properties the bank did have to repossess are being liquidated very quickly.

The bank, however, hasn’t been seeing much borrowing activity, he said.

“We want to lend money; that’s how we make a living,” Saunders said. “But some businesses have had pretty significant impacts to their balance sheets. Either they are struggling to survive themselves or those who are doing OK obviously don’t feel the need to borrow because everybody is still cautious.”

It’s going to take some time for the economy to fully recover, he said.

Household balance sheets were overleveraged and there was too much debt. Businesses also were carrying too much debt and were overleveraged.

Those things have to be reduced before people become comfortable with the idea of spending at the pace they need to spend so the economy can grow, Saunders said.

“We’re forecasting a relatively nice profit for our company this year,” he said. “I think we’re going to see some positive things happen to the economy this year, but I still think there some fundamentals out there that indicate it will be a very slow recovery at best. Until we see some changes in unemployment, I think the recovery is going to be very slow.”