Mr. Darst: I cover small- and mid-cap banks in the Mid-Atlantic and the Northeast, and a couple of names outside that area.
TWST: How have the banks on your list fared over the last year or so?
Mr. Darst: Better. My companies - the Mid-Atlantic banks - overall have performed better from an asset-quality perspective, and it's been the same with the Northeast banks. A lot of the community banks in those markets have less construction and development exposure. Therefore, they've had lower losses related to construction and development, and also the housing markets in the Mid-Atlantic and New England areas have fared better.
TWST: Has the financial crisis altered the business models for these banks?
Mr. Darst: It hasn't altered their business model, but what it has altered is their risk-taking or their risk profile. A lot of them do have problems related to construction and development as they continue to reduce exposure specific to the C&D portfolio. But then a lot of the banks had exposure to pooled trust-preferred securities, which are CDOs in their securities portfolio. And as the financial crisis has heavily disrupted the liquidity in those investments - that happened first - and then the underlying credit quality of the bonds deteriorated, a lot of the banks' capital positions have been negatively impacted. So this group has not been immune to needing to raise more capital. Many of the companies thus far have been very active in raising capital. And a few within their group have had larger securities portfolio issues. One that did not survive is Provident Bank, which was a Baltimore-based bank that sold to M&T in the fourth quarter 2008. They basically sold because they didn't have enough capital to handle the securities portfolio problems. They also sold prior to their asset quality beginning to deteriorate, which it would have done this year in the first and second quarters. It's similar to what we saw with some of its peers with exposure in Maryland.
Tickers included in this excerpt: BMTC, CBU, MTB, NBTB, NPBC, PBKS, SBNY, VLY
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