Last month’s news of a $2.4 million check-kiting scheme, perpetrated by John C. Reid and allegedly other executives of Ivy Industries against Albemarle First Bank, cast the story in sharp terms: A local bank would have to recover from a sizable fraud. A study of recent SEC filings by Albemarle First, however, indicates an institution that has been afflicted with growing credit problems since at least the fall of 2001. Moreover, the damage comes at the bank’s own hands, namely, in the bank’s own words from “poor underwriting and aggressive lending practices.”
Quarterly and annual Federal filings reveal that while the bank’s loan portfolio grew by 73 percent in 2001, it was forced early the following year to conduct an in-depth review of that portfolio. Questionable lending practices spurred Albemarle First to substantially increase its provisions for loan losses during a nine-month period extending into at least the middle of 2002.
Albemarle First would appear to be under double pressure now to restore its performance soon. Following disclosure of the Ivy Industries fraud, the bank’s share price fell 27 percent and on heavy trading volume. With news of the check-kite, industry observers predicted bad news for shareholders at the end of the current quarter—a loss of $1.94 per share.
The big question now is how long the effects of the bank’s poor lending practices will linger. At the end of the fourth quarter of 2001, Albemarle First added $735,000 to its provisions for loan loss. By the third quarter of 2002, an additional $700,000 had to be included. As the bank started to clear the slate of bad loans, an increasing number have had to be written off—the cost to the bank known in industry terms as “net charge-offs.” For Albemarle First, the percentage of net charge-offs to the total number of loans climbed to 1.63 percent in last year’s fourth quarter, the worst rating in the state among peer banks of a similar asset size. Albemarle First’s assets total $96 million.
While the poor loan performance is an issue for Albemarle First and its shareholders, “the more interesting thing,” according to Joe Maloney, the bank and thrift editor at SNL Financial, “is management’s own complaints of poor underwriting standards within the company, rather than the numbers themselves.”
Steve Marascia, a stock analyst at Anderson and Strudwick, says many of the problem loans can be blamed on Albemarle First’s former CEO, Charles C. Paschall. “Loans are not like a petri dish where it evolves overnight,” he says. “You have to go back and cull through all the loans and clean them out. It’s like a porch on the edge of a house that’s rotting. You don’t know how much you have to strip away until you get started.” Marascia’s firm, it should be noted, has a close relationship with Albemarle First, having underwritten the bank’s secondary stock offering in 2001.
“If management is correct in their assessment and they progress forward, it’s not a problem,” Marascia says. “If you continue to see more and more of the loans come under reclassification, that’s a problem.”
According to an April 2 news release, the bank recently exercised its stock warrants in an attempt to obtain more capital. President and CEO Thomas M. Boyd, Jr. said in the release that this action “will allow the Bank to maintain its momentum and grow its market position.”—Aaron Carico
Growing pains
Slow-growth group says sprawl is a regional problem
We’re here with the view that whatever Albemarle does with its growth will have impacts on the surrounding counties, both foreseen and unforeseen,” Nelson County resident Al Weed told about a dozen people at Westminster Presbyterian Church on Thursday, April 3. Weed spoke as vice president of Advocates for a Sustainable Albemarle Population (ASAP). The group heard reports from Buckingham, Fluvanna, Greene, Nelson and Orange on how Albemarle’s “growth management” affects its contiguous neighbors.
Albemarle is trying to protect its scenic appeal by limiting development in rural areas and channeling new residents into designated “growth areas.” The result, says Weed, “is that we’re just encouraging sprawl and working against the critical mass that would warrant public transportation.”
The problem is that Albemarle continues to draw retirees and young professionals who want both Blue Ridge vistas and specialty martinis. Albemarle’s land-use policies have restricted housing supply and inflated real estate prices, so people are moving to subdivisions in Greene and Fluvanna and commuting to their jobs in Charlottesville/Albemarle.
“Some people are willing to drive an hour and a half to get to work,” said Dan Holmes, a member of the Piedmont Environmental Council who spoke about Orange County.
Albemarle’s spillover has already made Fluvanna and Greene two of the fastest-growing counties in Virginia. But that development isn’t paying for itself. While subdivisions add to the tax rolls, the new residents also demand expensive services, especially schools. As a result, Greene is in debt and Fluvanna’s supervisors recently approved two controversial power plants to add millions in taxes without adding residents.
Such growth hasn’t spread as rapidly in Nelson and Orange. Buckingham, with only 16,000 people and two stoplights, remains in many ways pristine. In those counties, landowners are looking for ways to head off subdivisions. Layers of political obstacles stand in their way, however.
ASAP’s strategies for “growth management” all hinge on public willingness to accept government restrictions on development. But each speaker reported the political climate in their respective counties is hostile to regulation. Ironically, most of ASAP’s members are “come-heres” says Weed. Yet, County supervisors typically draw their power from older natives fiercely devoted to property rights.
Also, Weed noted that Virginia gives localities far less power to control development than do states like Maryland. That’s unlikely to change, says Weed, because homebuilders, real estate agents and auto dealerships––all of whom profit from sprawl––rank among the top contributors to State politicians.
In Fluvanna, Marvin Moss says, active citizens have infused preservationism into the local political culture. ASAP, whose membership consists largely of politically active landowners, seems intent on recreating Fluvanna’s success regionally.
“ASAP will take positions on growth issues,” said Weed. “The more we branch out our network, the more the political powers will listen to us.”––John Borgmeyer
Grant’s tome
School Board member bows out via e-mail
March 28, Gary Grant, holding the at-large seat for the Albemarle County School Board, sent out an announcement in place of his regular constituents’ report. He couldn’t have described the School Board session that evening—as per usual in his mass e-mails—even if he’d wanted to. Halfway through the six-hour meeting, he‘d put down his pen and ceased to take notes.
A few hours later at 1:30am, Grant, who in 1999 ran as the “information candidate,” began to craft his public decision not to seek a second term with the Board.
“Last night, in the midst of a presentation on school redistricting frameworks, I finally honestly admitted to myself that I was sitting someplace I didn’t want to be nine months from now,” he wrote.
“To those of you who may think I’m a jerk or hate my guts, I wish you improving days. I’m at peace with myself.”
For fellow School Board members, the sudden announcement came as a surprise, though not a shock.
“I am very sorry to hear it,” says Ken Boyd, representing the Rivanna School District. “Gary always offered an honest opinion that was truly a breath of fresh air.”
But Boyd, elected to the School Board for his first four-year term in 2000, also will desert the Board in December to run for the Rivanna seat on the Board of County Supervisors.
“There are an awful lot of demands put on School Board members’ time and members themselves for the decisions they have to make,” says Boyd.
As it stands now, three seats are up for grabs in November elections for the School Board: Grant’s at-large seat and the Rivanna and White Hall district seats. But with a filing deadline of June 10, only one candidate has yet announced his intentions to run: Murray Elementary PTO President Brian Wheeler.
“I will be disappointed if I go into this thing uncontested,” says Wheeler. “I’ll focus my campaign on getting my message out and people to the polls, but I’ll have to be more creative with my words and my points.”
Although Wheeler speculates that a lack of fire in Grant’s belly for a strenuous and County-wide race prompted his withdrawal, neither he nor seemingly anyone else has a solid remedy for Grant’s obvious frustration.
“It will be interesting to see what is written or said about my decision not to seek another term,” Grant wrote. “Only three folks—me, myself and I—know the truth.”—Kathryn E. Goodson
Artful enterprise
Local non-profits work around the recession
The decision behind the admission charge at Fridays After Five reportedly came down to one factor: economic recession, which has dried up the supply of sponsorship funds for the once free event. Charlottesville Downtown Foundation, which hosts Fridays, may be pleading the empty-coffers case, but other players in the local arts non-profit world have carried on in troubled times.
Piedmont Council of the Arts Director Nancy Brockman has seen the needs of arts non-profits increase due to the cuts in State funding, including a $350,000 cut to the budget of the Virginia Commission for the Arts.
“And since we’re in a recession, gifts from corporate donors have been more difficult to get also,” she says. “In a climate like this, in order to survive, everyone has to look at unique ways of fundraising, like special-events fundraising.” Putting its effort where its mouth is, PCA itself recently threw a Philanthropist of the Year benefit. “You have to get creative.”
Or, in some cases, more businesslike. Leah Stoddard, director of Second Street Gallery, says that since she took over the non-profit mainstay in 2000 she’s had to reconfigure her position to help maintain, and grow, the gallery.
“When I first started here all I did was curate. Three years later I’m doing a lot more fundraising than I ever did,” she says. “But that’s kind of inevitable. The most successful art organizations are the ones that are responsible with their money, and are proactive instead of reactive.”
To that end, SSG has made several structural changes to better secure funding. It has established a grant-seeking committee, instituted an exhibit-sponsorship program, sent targeted mailings and increased community participation to gain public awareness.
The goal, Stoddard says, is to let people know what their investment buys. “I’ve been in museums where money comes in and they say ‘Yay!’ but don’t go back and not only thank [donors], but tell them what they get [for their donation],” she says. “Rather than assume people do things for us, we have to redouble our efforts to show them what their support does.”
For one local philanthropy, tough times provide an excuse to allocate more money since now it’s needed most. John Redick, executive director of the Charlottesville-Albemarle Community Foundation, encouraged his donors to beef up their giving in awareness of the needs of arts groups. The Foundation, which manages the charities of Dave Matthews Band and group manager Coran Capshaw, among others, gave $2.7 million last year, compared with $2.1 million in 2001.
Still, Redick recognizes most non-profits are hurting and the CACF can’t help them all. “If we share a mutual frustration, it’s that their needs are growing, and even though our funds are growing we don’t have enough to cover them. It’s a shared anguish.”—Eric Rezsnyak