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Local banks weather storm
While the stock market tumbles one day and bounces back the next, local bank managers are quietly reassuring their customers that their position in this volatile financial market is "very safe and sound" in the words of Mike Leake, president of Rappahannock National Bank (RNB)
"There are a lot of scare tactics being used," said Leake referring to much of the reporting of the current financial crisis. "Some of it is valid, but a lot of it, is not.”
First and foremost, Leake stressed, is the difference between a commercial bank – such as RNB – and an investment bank of the kind that are failing or have failed and the focus of much of the bailout debate.
Leake said that RNB and its parent, Union Bankshares Corporation, were not involved in subprime lending such as no documentation or stated income mortgages, and no loans with high loan to value ratios. Leake acknowledged that a lot of the larger banks did do this and they are now having problems.
In fact, this situation – failing larger banks – is proving to be a huge advantage for the smaller community oriented banks, according to Leake.
He said that his bank has had a lot of inquiries from Wachovia customers, and that they are starting to get an influx of new deposits. Typically customers were drawn to the larger banks and the stock market because of a greater return, but the days of double digit returns are long over, said Leake.
"A four and a half percent return is a lot better than a negative 25 percent return," he said referring to the huge drop in stock prices on Monday.
The strength of these local banks notwithstanding, there still will be impacts on local economies. While the ripple effects from the stock market will continue to affect everything from pensions to bank-to-bank lending, careful lending practices have meant that some local businesses – here and in surrounding counties – are weathering the storm fairly well.
Community banks are also not immune to the upheavals on Wall Street and a tepid real estate market. Leake said they have seen loan losses but that these losses were typical in this type of economy. They have seen an increase in past due payments, but that overall their loss percentage was low and that they can manage the losses they have. Leake also said they have had only one property foreclosure and that it was a spec house by a contractor in Front Royal and not a typical homeowner borrower.
The Fauquier Bank
Over in Fauquier, Randy Ferrell – president and CEO of The Fauquier Bank (TFB) – said he believes some action must be taken by the government.
"The problem with the industry," he said, "is that larger banks are holding onto money. They're not lending it to other banks as they have in the past, and that makes it harder for large corporations and companies who depend on it." And as Leake – as well as several economists – noted, the problem is not credit, but liquidity. In plain English, that's cold, hard cash. "What the Fed and the Treasury are doing," continued Ferrell, "is trying to pour money into the economy to unfreeze it."
Leake, however, says that their position vis-a-vis deposits is actually improving. They still have a lot of cash and are still actively seeking loans. If there is a slowing in loan growth, said Leake, it is the result of liquidity or the ease with which cash moves through the economy.
"Our goal," said Leake, "is to raise our liquidity so we have money to lend locally," which, he says, is a very fortunate (for RNB) by product of some of these larger bank failures.
The local focus is also a part of TFB's mission. Ferrell said that as banks have gotten larger, they've not only lost meaningful contact with their customers, it also has become increasingly difficult to understand exactly what kind of holdings the institutions have on the books. This uncertainty about the value of an institution's holdings is central to the current economic problems. "With community banks," said Ferrell, "you can see what we do with the money."
Mike Ewing – former president of Marshall National Bank and president and CEO of Oak Hill National Bank, a new community bank in Fauquier slated to open later this year – concurred with Ferrell on the underlying differences between community banks and other segments of the financial industry.
"While we are currently hearing a lot about the woes of the largest financial institutions on Wall Street and many non-bank lenders, there are 8,600 community banks and savings institutions meeting the credit needs of the typical borrowers on Main Street every day,” said Ewing.
That, and deposits at these institutions are insured by the Federal Deposit Insurance Corporation (FDIC) while investments in stocks and other financial instruments are not. Currently the deposit insurance limit is $100,000, but there are discussions underway to increase that to $250,000. However, Leake said there were ways to structure accounts in order to protect as much as $800,000 in deposits.
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