Local banks are sound, despite crisis

By Matthew J. Perry
After a month of watching giant financial companies crumple in a Wall Street train wreck that becomes more brutal by the day, residents of Main Street are nervous. But local, commercial banks are intent on soothing frayed nerves and still looking for business, provided that prospective customers have sound credit and assets.
“We’re prepared to make loans, nothing has changed,” remarks Bob Armstrong, CEO of The Delaware National Bank of Delhi. “Loans are how we make our money.”
“No one is having trouble finding money for legitimate business or personal needs,” says Doug Gulloty, CEO of Wilber National Bank in Oneonta.
Delaware County lenders—small compared to those seeking federal bailouts—are upright, solvent and taking extra steps, such as print ads and press releases, to call attention to their conservative business practices and the security of their investments. They remain highly rated by independent assessors. Bauer Financial Inc., which evaluates banks much as Consumer Reports does appliances, gives Wilber National Bank, NBT, the National Bank of Delaware County and The Delaware National Bank of Delhi four or five stars on its rating scale; any bank given at least four stars is a ‘recommended’ institution.
Officers in these banks say the recipe for their steadiness is relatively simple: accept lower yields as a trade-off for mitigated risk, don’t sell loans to outside interests, and remain mindful that in small towns, clients are often friends and neighbors.

Local confidence
“There’s a high level of confidence in a community bank,” says Armstrong whose Delhi-based bank also has branches in Margaretville and Davenport. “When a customer takes out a 20-year loan with us, we expect that loan to be on the books until it’s paid off.” It’s a mindset Armstrong describes as “old school” without self-deprecation.
Gulloty, whose bank has local branches in Downsville, Fleischmanns and Boiceville, claims that banking professionals have long seen the potential and risks of subprime lending, considered by many as the root of the present crisis.
“Three years ago we decided we wouldn’t do that type of banking,” he says. “More than a year ago we confirmed that we had no toxic assets.”
However, it was possible to observe a growing risk to the industry in the actions of other institutions. “You knew there could be a problem because loans you were turning down were getting approved elsewhere,” Gulloty explains. “You could see which brokers were feeding this machine.”

Adding risk
Although commercial banks are heavily regulated—overregulated, in the opinion of NBT CEO Marty Dietrich, whose bank operates local branches in Margaretville, Grand Gorge and Hobart—there was ample opportunity to take on greater risk, especially in areas that experienced real estate booms. “
Some commercial banks, for instance in Florida and California, have gotten into a lot of trouble,” says Dietrich. “But generally, commercial banks don’t use exotic investment instruments and loans that haven’t been proven to work through several business cycles.”
Human nature being what it is, Gulloty for one, isn’t willing to say it could never happen here. Discussing the real estate markets that promised enormous, quick returns on investments, he explains that upstate New York was not party to the boom times, and so perhaps lenders never experienced the temptation to extend their risks.
“I’d like to say sure, we’d have laid off the chance of a 20 percent return, but is that true? Perhaps we got a little bit lucky, after all.
“The problem wasn’t a lack of regulation; there are more than enough regulations. It’s that either people didn’t enforce them or lacked resources to do so.”
Security comes at a price. Wilber’s FDIC premiums will more than double in the coming year, according to Gulloty, but the rewards of being a community banker make some officers sound almost bullish, especially in contrast to the distress of national lenders. DNB’s stock price has increased nine percent in the past year, according to Armstrong; Gulloty states that Wilber National is “finding more opportunity than ever before.”
“I’m especially glad we chose that conservative road,” said NBDC President Patrick Galloway, whose Walton-based bank has branches in Andes, Roxbury and Stamford, in a prepared statement.
For now, exhorting their customers to “rest easy” and enjoy the “calm feeling” of tortoise-beats-the-hare banking practices, county lenders seem justified in claiming that their wisdom and caution have kept them out of the disaster still unfolding downstate.
But local lenders do not exist in a bubble. “This is a very serious crisis,” says Dietrich. He argues that Wall Street is not alone in needing a lifeline. “It’s really a Main Street bailout ultimately. If the credit markets seize up it will create a ripple effect through the entire economy.”