(c)2010 NPT PHOTO BY DAVID POPIEL

National Bank President Keith Ketterman said the community bank is reviewing its loans and
plans to raise an additional $3.5 million to add to the holding company's hefty $14.7 million
equity capital.

Community bankers continue to feel the repercussions from the 2009 recession and some believe they are being unfairly penalized.

Federal regulators have been requiring many community banks, including ones serving Cocke County, to raise more capital in the aftermath of the global mortgage market collapse.

National Bank of Tennessee President Keith Ketterman said the bank is among those contacted by the Office of the Comptroller of the Currency (OCC) to raise more capital reserves.

Ketterman said that National Bank's holding company, NBN, which also owns First Peoples, has $14.7 million in equity capital but is already planning to raise more.

He argues that stiffer regulation could result in some banks tightening up on their lending policies, at a time when the Obama Administration and Washington are calling for banks to make more loans.

Recently, in Washington, Newport Federal Bank President Richard Harwood heard the same message and warning brought by US Rep. Barney Frank, The House Committee on Financial Services chairman.

In a letter Federal Reserve Chairman Ben Bernanke, with whom Harwood spoke, and key regulatory body leaders, Frank stated: "Community banks became strong and viable players in the financial services industry because they fill an important need, and it would be short-sighted to weaken that role through over-zealous regulatory actions-actions based not on wrong-doing or poor management practices at these banks, but on changes in the economic environment and toughening regulatory standards."

For about 43 years, Ketterman has been in Tennessee banking and said about 2009, "It was the worst I've ever seen. The economy affected everything, which in turn, affected the banks."

"We had a real tough year, like many did, and reported a loss for the year," he said. The key problem area for NBT was some commercial loans that became non-performing.

"We are Okay today. We have money to loan and will soon be raising more capital," he said. However, for some commercial property there is no market, but "We are working with our customers."

The OCC is requiring many regional and community banks to build their capital reserves by increasing the percent of capital compared to assets. Congressman Frank observed "the official regulatory standard for being 'well capitalized' is basically 5% for Tier One Capital and 10% for Total Risk Base Capital."

National Bank has reduced its assets to about $185 million and already had achieved a 7% capital level but their new target will be 9%. This means NBT will raise an additional $3,500,000.

"We are making adjustments and complying. We look forward to the continued support of our customers and our involvement in the community will continue," said Ketterman.

At this time, Ketterman said no firm decisions have been made on how the bank will raise the funds. It could do so by selling stock, borrowing, or selling debentures-a method similar to selling bonds. All these are the traditional ways corporations raise funds.

In addition, the OCC is giving community banks more guidelines on how loans are to be reviewed. "We are working with our borrowers and it will take time to correct some situations," he said.

Advice Ketterman offered to borrowers who believed they might have a problem repaying loans because of job losses or lower income is to immediately contact "your banker. Go talk to them. Don't surprise them."

Ketterman also said that now and in the future good credit will be essential for people who seek any type of loans.

Most community bankers, including Harwood and Ketterman, agree with Rep. Frank who stated in the letter last fall that the majority of problem sub-prime loans were originated by non-bank lenders. "Yet, it is the already highly regulated traditional depository banks that are feeling the greatest regulatory pressure."

Ketterman said he believes that community banks are basically strong but will have a more difficult time until the US and Tenn. jobless rates decline. "We are going to have to work together."

Profit margins for community banks are expected to be less. "We didn't get bailed out," he said, referring to the billions of dollars in taxpayer money that went to giant banks and insurance companies to keep them from failing.

"We didn't want the funds because we don't want government running our banks," he said.

As for the rest of the year, Ketterman said community bankers will make it through another tough year before he sees improvement in the economy to sustain growth and increased business activity.