The high and low tides of coastal banking

Jimmy Rasmussen of HomeTown Bank in Galveston, Texas, has seen more than his share of tropical storms and hurricanes over the years. Photo: Robert Seale

Travelers come and go from resort destinations, but the community banks that serve these coastal communities remain, regardless if it’s peak season or if a tropical storm is brewing. But what’s it like behind the postcard? Coastal banks deal with cash-heavy businesses, shipwrecked collateral—and even sand in their branches.

By Judith Sears

Only about 7,000 people permanently live in Ocean City, Md., a resort town located on a barrier island between the Atlantic and Isle of Wight Bay. But that number swells when vacationers arrive to kick back on its sun-soaked beaches, stroll the three-mile boardwalk and sample locally made saltwater taffy. During the peak tourism season, however, nearly 350,000 call the city home—at least for the weekend.

“Gearing up for the summer impacts everything we do,” says Reid Tingle, president and CEO of the $355 million-asset Bank of Ocean City.

Bank of Ocean City keeps some of the lobbies of its beachside branches open on Saturdays from Memorial Day through September, which requires additional staff to serve the season’s extra traffic. March and April also call for reactivating the card processing services for many seasonal small business customers.

Since these same customers must earn a year’s worth of income in three or four months, a weekend’s dip in income can be disastrous. If a business’s card processing machine fails, the Bank of Ocean City goes all out to help. Bank representatives go on site, including on nights and weekends, to replace faulty equipment.

“Most of our commercial customers have our cellphone [numbers],” Tingle explains. “They can’t afford to miss an opportunity to get revenue. We have to be available.”

In order to cope with the high demands of the summer season, Bank of Ocean City moves nearly all internal projects, such as staff training, to the off-season. “We do a lot of BSA [Bank Secrecy Act] training with the off-season, because the nature of the cash volume picks up so dramatically in the summer,” he says.

Bank of Ocean City also has plans to upgrade its ATM system. This project will be implemented in the first quarter of 2020, but Tingle has planned for it to be completed by the looming summer deadline. “The upgrades have to be fully operational by June 1,” he says.

Banking for the summer season

In Stone Harbor, N.J., Sturdy Savings Bank is no stranger to the seasonal business of a resort community. The $835 million-asset community bank operates 14 branches on southern New Jersey’s Cape May Peninsula. “The tourism component is a very significant part of our business in terms of our customers and local residents,” says Gerald Reeves, its president and CEO.

Catering to seasonal businesses requires banks to structure loans that can accommodate these unique cycles. “Many of our loans are to motel, hotel and restaurant owners, and a good percentage of those operations are only open in the summertime season,” Reeves explains.

“Many of our loans are to motel, hotel and restaurant owners, and a good percentage of those operations are only open in the summertime season.”

—Gerald Reeves, Sturdy Savings Bank

To accommodate these needs, Sturdy Savings Bank structures loans so that customers can pay the principle portions due on Aug. 1, Sept. 1 and Oct. 1.

“When other lenders hear that, they say, ‘Really?’” Reeves laughs. “But a motel open from mid-April to mid-October doesn’t have too much revenue in the early months of the season and has a lot of expenses that have been carried through the winter.”

Gerald Reeves of Sturdy Savings Bank in southern New Jersey says commercial fishing is a key component of the bank’s lending activity. Photo: John Dimaio

Reeves adds that the community bank frequently divides the interest component quarterly, accommodating borrowers so they only have to come up with two interest payments in the off-season.

These customers’ fluctuating deposits also affect Sturdy Savings Bank’s cash levels. The bank handles this by using short-term investments, such as selling federal funds in the summer when cash levels are high, and, in the off-season, occasionally borrowing advances from the Federal Home Loan Bank. “That equalizes our cash levels on an annual basis,” Reeves explains.

There is one coastal business that is less subject to wide swings in activity: commercial fishing. “Commercial fishing is a vibrant part of our local economy,” Reeves says. “It’s a year-round business and some fishing vessels shift from species to species in terms of what they harvest from the sea.”

The industry can be lucrative but has a high cost of entry, Reeves observes. “They need capital to purchase or upgrade, and that’s the type of lending we do,” he says.

The distinctive feature about the commercial fishing industry, however, is that the collateral—the vessel—is often sailing the high seas. A vessel might go out for 10 to 14 days and might dock somewhere else or offload product at another port. “If they’ve been out for a week or so and the weather turns bad, they might go to some other port rather than come back through bad weather,” Reeves says.

“Other bankers raise their eyebrows at the prospect of lending to vessels when you don’t know where they are on a daily basis,” he acknowledges. “As a ship goes from port to port along the Eastern Seaboard, if there’s a loan performance issue, the ways to remedy that are significantly different than when the borrower owns a house.”

Once, when Reeves was working at a different bank, he had a commercial fishing customer who was struggling to make payments. In order to increase his income, the customer went out in some bad weather. Unfortunately, the weather overtook the vessel, which ended up washing ashore on Long Island.

At that point, state law and admiralty or maritime law, which covers contracts and offenses that take place on navigable waters, intersected. Under admiralty law, the vessel couldn’t be abandoned on the shore as it would be subject to salvage rights. Some other maritime interest could take possession of the vessel, so Reeves had to ensure that someone stayed with the vessel while the community bank hired a tugboat from Brooklyn to pull it into the harbor to start the foreclosure process. Once the vessel was at dock in New York Harbor, New York law took over jurisdiction and the bank switched to a New York attorney for representation and to conduct the vessel’s auction.

“Commercial fishing is a very tricky business,” Reeves observes. “You need specialized training for lenders and attorneys alike.”

When it’s not all plain sailing

One of the great challenges to coastal communities is, of course, extreme weather. HomeTown Bank was founded on Galveston Island, a barrier island in Galveston Bay, Texas, that has seen many tropical storms and hurricanes over its 53 years. “We have two offices on Galveston Island, and we are constantly watching out for storm season,” says Jimmy Rasmussen, the $600 million-asset community bank’s president and CEO.

Because of its long experience with extreme weather, HomeTown Bank has developed an extensive list of procedures that guides decision-making in an emergency. The bank asks employees to call in as soon as possible after a storm to notify the bank if they’ve evacuated and when they can return.

“We tell every department where to report after a storm and provide an alternate reporting spot,” Rasmussen explains. “We tell them to be safe and get in as soon as they can.”

When hurricanes strike

Jimmy Rasmussen, president and CEO of HomeTown Bank in Galveston, Texas, walked away with one main takeaway from Hurricane Ike in 2008: Taking care of employees is the number-one priority.

“They’re going through an emotional time because of what they’ve lost,” he says. “You have to pay attention to the mental anguish that they’ve been through.”

Accordingly, HomeTown Bank has developed a form to determine employees’ needs in the aftermath of a storm. “When they call in, we ask, ‘Did you lose a house? A car? Do you need food or clothing?’” Rasmussen says. “Communication after the storm is extremely important. We encourage them to call as soon after the storm as they can and let us know their status and if they have any problems.”

During Hurricane Ike, HomeTown Bank had 14 employees whose homes were flooded or who had lost vehicles. The community bank put affected employees up in hotels and helped them to buy new cars. In all, the bank and the Independent Bankers Association of Texas handed out 17 grants to assist employees with handling their losses.

HomeTown Bank even bought lunch for employees for two weeks and paid payroll several days early to help employees cope with expenses. No one’s pay was deducted because of missed days from the storm.

Rasmussen adds: “You’ve got to get back to the office, but you better take care of your employees first.”

Whatever the weather

While coastal community banks do everything they can to prepare for hurricanes, the damage can be unpredictable and bring operations to a halt. During Hurricane Ike in September 2008, HomeTown Bank’s two Galveston Island branches were closed for 10 days while a major highway was closed to prevent looting. In the aftermath, HomeTown Bank temporarily relocated some operations to mainland branches in Friendswood and League City, Texas, both cities sitting south of Houston. On the first Monday after the storm hit, 20 employees showed up. The Friendswood branch opened that day at noon, but closed at 3 p.m. “We wanted employees to be able to go home and take care of their personal situations,” Rasmussen says.

The Galveston Island branches opened 10 days after Hurricane Ike hit. “We opened with a staff of about 15 people and waited on 50 customers that first day,” Rasmussen recalls. “The 50 people that came had stayed on the island through the storm.”

Electricity wasn’t yet widely available on the island when the HomeTown Bank branch reopened, but the community bank’s generator powered the building—most importantly, its air conditioning. The bank purchased 400 bottles of water to give away. With air conditioning and cold water, HomeTown Bank provided an oasis for islanders in the hot weather typical of Galveston in mid-September. “We were a very popular spot in town,” Rasmussen says.

Amid the devastation of Ike, all of the community financial institutions felt the urgency of the circumstances. One week after the storm, HomeTown Bank had an emergency board meeting in its Friendswood branch. “The message from the chairman was, ‘Throw the budget out the window. We’ve got to help the customers,’” Rasmussen says.

Lyda Ann Thomas, the former mayor of Galveston, Texas, had a similar message when the city’s community bankers met with her. “She said, ‘Please do what you can,’” Rasmussen recounts.

HomeTown Bank and other community banks banded together to create a loan program that generated $40 million in short-term loans that helped the community get back on its feet. The loans were 90-day, single-pay loans at low interest rates for business owners and residents who could show proof that they had insurance coverage.

In addition, HomeTown Bank waived fees for overdrawn accounts and late loan payments for a period of time. “The mail wasn’t delivered for a week and people had overdrawn accounts because they weren’t getting their paychecks,” Rasmussen says. “Also, most of our customers had damage and either couldn’t get to their homes or a bank branch.”

Rasmussen emphasizes that the group of banks worked together to help the community during the aftermath. “Nobody was trying to get a step on somebody else to stay open later to cash checks,” he said.

In 2012, Hurricane Sandy produced a similar response from Sturdy Savings Bank on the New Jersey peninsula. The bank offered short-term loans to those who had suffered damage. The loans were at a low interest rate, had no fees and the community bank offered easy credit standards to make the loans happen. “We want the bank to be seen as part of the solution,” Reeves says.

In an area that frequently experiences extreme weather, Sturdy Savings Bank’s administrative staff routinely include storm tracking in their duties. “We have folks that stay in constant touch with the local emergency management agency that issues advisories,” Reeves says. “We usually have a three- to five-day notice and prescribed methods for how to prepare and recover from storms.”

Banking at high and low tide

Nancy Bergin, senior vice president and retail leader in South Carolina for $3.9 billion-asset CresCom Bank, says hurricanes, tropical storms and other extreme weather highlight the importance of community banks to their customers. “If the system goes down, people need cash,” Bergin says. “We are one of the last legs in the community to shut down.”

“If the system goes down, people need cash. We are one of the last legs in the community to shut down.”

—Nancy Bergin, CresCom Bank

The community bank operates 62 branches throughout the Carolinas, including in coastal areas like Myrtle Beach, S.C., and the Outer Banks in North Carolina. After a storm, employees take a “hands-on” approach to understanding a storm’s impact, Bergin says. Local branch employees actually drive around to see if roads are passable.

“We don’t just rely on what local media or social media tells us,” she says. “We drive it to make sure our team members and customers can get to a location. Sometimes the local infrastructure is not as robust, and the actual condition of roads and power aren’t easily known. We get more real-time information from our team.”

Nancy Bergin with customer Mitul Patel, who owns a small business in Summerville, S.C.

CresCom Bank’s bankers often go the extra mile by personally visiting a customer’s business site after a storm. For example, if a branch hasn’t heard from a local hardware store, bankers check in with the location to see if they have any needs. “If we can’t reach a customer that we know is going to need our support, one of our bankers will stop by and see them. They may be on the floor, busy with their customers, and we want to make contact proactively to see how we can support them, whether helping with deposits or resupplying cash or some other need,” Bergin explains.

Hurricanes make big headlines, but the famous nor’easters off the East Coast can be as damaging as some hurricanes and are much more frequent. “You get three days of sustained winds and high tides. The water comes in at high tide, but on a three-day nor’easter, the wind keeps blowing, the high tides keep coming in and the low tides don’t get to go out. The water rises and we get significant flooding,” Reeves says.

Flooding is such an issue that some of Sturdy Savings Bank’s coastal branches don’t have carpet, only tile. “You can dry a salt water-covered carpet and the next month it will be completely moist. Salt takes the moisture out of the air, so it re-moisturizes the carpet,” Reeves explains.

Coastal living clearly puts the commitment of community banks to their customers to an extreme test. But Gerald Reeves wouldn’t live anywhere else.

“Don’t get scared by all the weather news,” he advises. “It’s a beautiful place to live, a place where people go to have fun.”

“Gearing up for the summer impacts everything we do,” says Reid Tingle of Bank of Ocean City. Photo: Kyle Hughes

Cash considerations

The boardwalk arcades that draw visitors to the New Jersey and Maryland shores are cash-intensive, particularly when it comes to coins. Reid Tingle, president and CEO of Bank of Ocean City in Ocean City, Md., says he’s had arcade vendors bring in $20,000 in coins in 20 $1,000 bags.

The cash-intensive nature of many of Ocean City’s customers’ businesses even affect how its branches are built. “When we build a branch, we make sure to have lots of vaults, because we may be storing $5,000 in one-dollar bills, and we need the vault space to keep it stored,” Tingle says. “Some of our branches have added vaults to accommodate the large levels of cash.”

Sturdy Savings Bank, on the New Jersey peninsula, also caters to cash-heavy boardwalk businesses. Gerald Reeves, its president and CEO, recalls being surprised that after Hurricane Sandy, the community bank’s Ocean City, N.J., branch had 30 inches of standing seawater inside the building, including the vault, despite the fact that the branch had suffered little wind damage.

“We had some bags of coins in the vault, and they were wet, sandy and salty,” Reeves adds.

In fact, the coins were in such bad shape that the Federal Reserve Bank refused to take them.

Sturdy Savings Bank employees who had been unable to work because the branch wasn’t open were tasked with dipping the coins in fresh water and laying them out to dry. Just another day at the beach.

Judith Sears is a writer in Colorado.