Fannie, Freddie, and Community Banks

Since every day seems to be bringing new trouble to the market, it's easy for us to lose sight of the aftershocks from previous news items. Below is an excerpt from one community bank announcement this morning; it's safe to say we'll be seeing more of this.

In your opinion, where do local and regional banking institutions go now to assure safe, consistent returns?

On September 10, 2008, Glen Burnie Bancorp (the “Company”), the bank holding company for The Bank of Glen Burnie, determined that it expected a significant write-down of investments in the three series of preferred stock issued by Federal National Mortgage Association (Fannie Mae) and Federal Home Loan Mortgage Corporation (Freddie Mac) held by the Company. These securities, which were AAA rated at the time of purchase, had a cost of $3,000,000 as of June 30, 2008 and had declined in value to $163,000 as of the close of business on September 9, 2008 as a result of the appointment of the Federal Housing Finance Agency as conservator over both Fannie Mae and Freddie Mac announced on September 7, 2008. Based on these developments, the Company will record an other-than-temporary impairment and take a non-cash charge to earnings related to these preferred securities for the quarter ending September 30, 2008.

Tags: banking, community, fannie, freddie, mac, mae, writedown

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Permalink Reply by JJ Hornblass on September 16, 2008 at 1:07pm: Excellent point.

How large is Glen Burnie Bancorp?; ▶ Reply to This

Permalink Reply by Townes Coates on September 16, 2008 at 1:36pm: This is a $319 million total asset, 8 branch community institution. Consumer lines-focused, heavy on residential mortgage, serving a geographic area that still has echoes of its blue collar and agricultural roots but has transitioned into high value bedroom communities for the DC-Baltimore corridor. In short, GBB looks like a lot of community banks out there; it's tough to take a hit like this, even if well capitalized, and avoid real local impact.; ▶ Reply to This

Permalink Reply by Michael Gibb on September 16, 2008 at 1:32pm: The bank has about $319 million of assets and a market cap of $34 million, as of this afternoon.

While I'm sympathetic to the bank's plight -- and that of other banks that invested in GSE stock -- there is no guarantee with any investment. Nobody should make an investment in the stock market without at least thinking that they could lose their shirt.

The advantage that community banks have is just that. Their involvement in the community. That's where they are going to have to go. The stock market's volatility will have a lot of consumers looking for alternative investment options. Community banks can step up into that void.; ▶ Reply to This

Permalink Reply by Townes Coates on September 16, 2008 at 3:49pm: I quite agree, Michael. One of the things that has been much discussed in recent days is the perception vs. reality of Fannie/Freddie and the connection to the Federal government prior to takeover. These securities were, of course, just as vulnerable to volitility as any other. As well, your suggestion that CBs return to their roots of community investment--beyond CRA mandates--helps both the institutions and their customer constituencies.; ▶ Reply to This

Permalink Reply by JJ Hornblass on September 16, 2008 at 5:43pm: Mike, I'll bet you a Sprite Zero that Fannie and Freddie didn't sell their preferred stock offering to GBB as having "no guarantee" ... "that [GBB] could lose their shirt." They no doubt sold it as an investment in a quasi-government enterprise. GBB deserves a bit of sympathy here.; ▶ Reply to This