Bank CEO sees weakness in local economy

The chief executive of Beneficial Bank, the biggest bank based in Philadelphia, gave an unusually blunt assessment of the region's economy Friday, as the bank reported its first substantial loss since going public in 2007.

"We see no evidence of an economic recovery in our region and believe that any economic recovery will take place over a significantly longer period than originally anticipated," said the executive, Gerard Cuddy.

That outlook led Beneficial, which has the seventh-largest share of deposits in the Philadelphia region, to boost its provision for future losses on loans by $51.1 million, which is more than it had recorded the previous 14 quarters combined.

Beneficial also charged off $57 million in principal on loans ranging in size from $5,200 to $12 million because the collateral is no longer worth as much as is owed, based on recent appraisals of properties, such as offices, warehouses, and mixed-use buildings.

Janney Montgomery Scott stock analyst Rick Weiss said in a note to investors that he was "stunned by the magnitude" of Beneficial's credit-related charges, but he said he still liked the stock after its 10 percent decline Friday because the bank has enough capital and "management appears to be proactive."

Beneficial shares closed at $7.82, down 90 cents. The third-quarter loss was $21.73 million, or 28 cents per share, compared with a profit of $5.82 million, or 7 cents per share, a year ago.

Cuddy said that around Labor Day, the bank started seeing steep declines in appraisals of commercial properties it had as collateral.

For example, Cuddy said, the bank in 2007 lent $7 million for a property appraised at $10 million. The loan has been paid down to $6 million, but the new appraisal was at $5 million. Beneficial charged off the $1 million difference, even though "the loan is still performing," he said.

Unlike Wilmington Trust Corp., another local bank that recorded a sharp spike in credit-related charges this year and is now reportedly seeking a buyer or investors, Beneficial did not seek money from the U.S. Treasury Department under the 2008 Troubled Asset Relief Program and still has a strong capital position even without bailout money.

Cuddy said there was no comparison. "This was us going on offense," he said.