Published: May 28, 2009 05:33 pm      

Bank on it

Recession pushing customers toward locally-owned banks

There’s at least one positive result from this economic recession: More consumers are returning to community-oriented business models.

Perhaps no industry has benefited more from that trend than banks. Locally-owned and operated institutions like North Salem State Bank and State Bank of Lizton, which celebrates its centennial next year, are enjoying strong profits.

Les Mongell, president of the State Bank of Lizton, says their deposits have grown by $25 million so far in 2009 — significant growth for a company with only nine branches.

“I think there’s been an exodus from some of the larger banks,” Mongell said.

Likewise, Matt Howrey, CFO for North Salem State Bank, says financially they recently had one of their best quarters in years. Unlike some of the national institutions, they have plenty of money to lend to qualified buyers, he said.

“We’ve obviously seen a slowdown, but we’ve benefited from the bad press the big banks have received,” Howrey said.

Mongell credits State Bank of Lizton’s success in this bad economy to sticking with its values.

“We did not get into the subprime lending,” he said. “When you do business with us, it’s like stepping back in time. We still require people to prove their income, have the ability to repay debt. We’re not in it to make a fee and move on to the next transaction. We’re more relationship type of builders.”

In that regard, Howrey likes some of the new regulations the federal government has put into place in response to the financial meltdown.

“They’re doing some things to protect consumers that the community banks weren’t participating in,” he said. “Some of the big banks had programs that took advantage of lower-income borrowers.”

Those new standards have come with a steep price, though. Both State Bank of Lizton and North Salem State Bank have seen their compliance costs with the Federal Deposit Insurance Corporation more than double in 2009. The FDIC ordered a special assessment for banks earlier this year. That cost State Bank of Lizton about $500,000. In 2008 they only spent about $60,000 on assessments.

“Did we cause the problem? Not necessarily. But are we paying the price? Yes we are,” Mongell said.

He adds it’s especially difficult because they only budgeted $125,000 for such costs.

“We have the wherewithal to weather the storm, but it sure is going to cut into our profits,” he said.

Howrey knows the dance with the FDIC better than most. Prior to his employment with North Salem State Bank, he served as a regulator and worked with the Department of Financial Institutions. He’s not sounding alarms over the Obama administration’s economic strategy like some.

“Compliance is what it is,” Howrey said. “There are always new regulations and laws. In the last six to eight months they’ve come out like wildfire trying to fix some of the problems. But it’s nothing we haven’t seen in the past.”

Mongell isn’t so benignant. He likens the government’s approach to taking different drugs while not knowing the side effects.

“We’ve thrown so much money at some of these programs that we’re not necessarily sure of the results,” he said.

Mongell thinks the worst of the recession has passed, even if unemployment numbers continue rising in the short-term. In light of the economic downturn, he says the same values that define community banks will have to be applied by more Americans.

“I don’t think we’ll have the high-rolling times of the late ’90s and early 2000s again,” Mongell said. “We’re all going to have to tighten our belts and learn to live within our means.”

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Online:

www.statebankoflizton.com

North Salem State Bank

www.nssb.cc



wade.coggeshall@flyergroup.com