Community banks committed to local relationships

 Safe Deposit

SARATOGA COUNTY – Our economy and community has stayed strong through the recession, and we have our local banks to thank for it.
Representatives from the Independent Bankers Association of New York State (IBANYS) want to get the word out that our independent banks are not only healthy, they are helping their communities through the recession.

“If you look at upstate New York compared to the rest of the country, our banks are healthy,” said Frank Capaldo, president and CEO of IBANYS. “We get lumped in with everybody else, with Wall Street. They do their thing and we just do ours a
little differently: we serve in the community with local deposits and local lending.”

Small banks have a different low-risk model. They are involved in a closed system of financial exchange between the individual account-holders, homeowners and businesses that make up a community.

In our economy, independent banks like The Adirondack Trust Company, Saratoga National Bank, Ballston Spa National Bank and 1st National Bank of Scotia, have been thinking local for generations. These County banks gather their pool of capital from individual deposits, and then use that money to invest in the local economy.

“We’re the original recyclers,” said Charles Wait, president of The Adirondack Trust Company.

He explained that the bank lends to business owners who keep the majority of their profits inside the system. In turn, a local enterprise will provide jobs and taxable revenue and that goes back into the economy to support infrastructure, hospitals, charities, and all the things that keep our community ecosystem healthy.

“The whole purpose of us to exist is to make loans,” Wait said.

In this economy, when even the employed lack job security, lending would seem like a risky business. But right now, our banks are lending and are doing so with confidence because at the core of their model is the high value they place on personal relationships.

“Community banks are really defined by the relationships they establish with their customers and their community,” said Chris Dowd, president of Ballston Spa National Bank.
Dowd, who also sits on the IBANYS board, said that bankers who know their customers can make informed decisions about giving a loan or making a mortgage agreement. In turn, they have the luxury of leniency and patience when an individual’s situation heads for foreclosure. Their small scale allows for problem-solving and relies on prudency.

“The key for us, as a community bank, is being close to the ground and having regular communication with our customers,” said Ray O’Conor, president and CEO of Saratoga National Bank. “At a bank like ours,  when people encounter trouble, whether it’s because of the loss of a job, an illness, a divorce or some other issue, we operate on a scale where we can actually talk to the customer and try to make some accommodation, to work through the issues.”

Saratoga National has had just one foreclosure in the past 23 years.

Similarly, Adirondack Trust only cites two failures out of the more than 1,200 mortgages in its portfolio, and, according to Wait, that’s how it should be. In one extreme situation, the bank waited 10 years for a payment from a customer who broke her back and was unable to work.
“We held her mortgage because that was the right thing to do,” Wait said.

For a small community bank, going out on a limb for a customer in an unfortunate situation is the most reasonable risk to take. It’s an investment in the community.
At the end of day, our local banks are able to avoid foreclosures when larger institutions are writing off mortgages by the handful because their model is simple. They know their customers and they keep their capital local.

“It is bad out there, but there are some bright spots, and those bright spots have been in your community forever,” Capaldo said.

Independent Community Banks More Than Willing to Lend

Exclusive to the Wall Street Journal

By Frank J. Capaldo, President/CEO, Independent Bankers Association of New York State, Inc.

Many in the media and politics have created the impression among the general public that all banks are the same and all banks were responsible for the toxicity that caused this great recession. The Independent Bankers Association of New York State (IBANYS) is writing this article to address those inaccurate impressions. Instead, we seek to replace those negative impressions with positive factual information that families and small businesses of the Empire State can find security in and rely upon.

Simply stated, New York Independent Community Banks should not be lumped in with all banks and non-bank banks.

We commend the members of the Fourth Estate for the light they have shed on the practices of financial and too big to fail institutions. However, there has been a failure by those who hold the pen and the bully pulpit, to distinguish community banks from the crowd. To not separate out all those independent community banks that lend, that are safe and sound, and did not, for the most part, involve themselves in the sub-prime debacle, misinforms the American people and perpetuates disruption on Main Street.  Too many headlines and speeches continue to deter recovery with such statements as banks are “less able or willing to lend than before the recession… have reduced money available in credit lines…and have reduced home equity credit lines.”

For New York independent community banks, these statements simply do not tell the entire story. We believe for numerous reasons, of which only a few can be touched upon herein, that community banks are distinguishable from the pack as “Champions of Main Street”. They were before, during, and we are confident, after our resilient country rises phoenix-like from this recession.

Through responsible loan practices, which remained consistent pre- and post-recession, to credit worthy individuals, families and small businesses, community banks were able to maintain or increase their lending ability. More important our New York community banks were there for their communities during the worst of the recession and now, at the start of the road to recovery. The standards held by independent community banks have been their mainstay for generations, and it is not something that will change. Just ask John Buhrmaster, fifth generation community banker and President of 1^st National Bank of Scotia, or Peter Forrestal, CEO, fourth generation community banker at Bank of Akron, and a host of others.

Community banks make money by lending, and loans on the balance sheet are assets. To not lend is counterintuitive because that is how community banks (our members) generate profits and shareholder return. Not lending inhibits profitability and growth. To illustrate a few specific examples, the following IBANYS members were able to lend prudently and grow in a safe and sound manner.

Oneida Bank, at $550 Million in assets, has funds to lend and wants to do just that. Oneida has provided over $40 million dollars in lines of credit and credit facilities to small businesses in the local community. Yet, as of June 30, 2011 the dollars outstanding have hovered at 20% usage, while interest rates are at historical lows. This suggests fear of the unknown by small community business, NOT unavailable funds. According to Chief Credit Officer, Tom Dixon, “underwriting standards have not changed in the past three (3) years.”  

Alliance Bank, a community bank in Syracuse, is typical of most community banks. From 2008 to present, their home equity lines of credit increased by approximately 18%. Through the end of 2010, Alliance provided nearly $400 million in residential mortgage financing in Central New York. A 63% increase over 2007, the year before the financial meltdown. Alliance also reported a 55% increase in commercial loan origination over 2009. Alliance is $1.4 Billion in assets.

We would suggest another reason small businesses fear borrowing — not because funds are unavailable — but because small businesses are uncertain about tax changes, depreciation schedules, job creation, deficit spending and strained local budgets. The general perception is that Washington and state governments ignore or do not understand Main Street Banks and their customers; small businesses and homeowners.

State chartered, Solvay Bank, is another typical example of our member community banks. Solvay was founded in 1917, and currently has approximately $600 million in assets. From January 1, 2008 through March 31, 2011, Solvay has seen commercial and industrial loans grow by 17.3%; residential and home equity loans grow by 6.5% and retained the same underwriting policies and practices during the entire period. Solvay Bank, CEO, Paul Mello, stated, “Solvay, never stopped and will continue to lend to qualified customers to support the communities we serve, work and live”.

Mello, who is also the Chairman of the Independent Bankers Association, further stated, “The fact is, businesses remain cautious about borrowing because of sluggish economic growth, NOT because community banks do not want to lend”.

Moving from a few specific examples, let’s take a quick general look at a Region the FDIC Tracks for banks with less than $5 Billion in assets. (Which constitutes the asset size range of 95% of our members): The Region is Upstate New York Community Bank Performance vs. the rest of the United States as tracked from the first quarter of 2008 through the first quarter of 2011. The percentages below are for the end of the first quarter of 2011, but graphs for the entire period can be supplied upon request.

1.  Share of Noncurrent Loans: U.S. 3.68% vs. Upstate NY (UNY) 1.78%. 
Conclusion: Community banks in Upstate New York have better credit quality by half compared to the U.S. norm.

2.  Net Charge offs to total loans: U.S. 1.45% vs. UNY 0.39%. 
Conclusion: Community banks in Upstate NY yield fewer charge-offs at one-quarter the U.S. Average.

3.  Annual Change in Net Loans & Leases: U.S. -7.8% vs. UNY 1.5%. 

Conclusion: Upstate New York Community banks have kept the loan window open and continue to 
support local borrowing needs.

4. Annual Change in Commercial & Industrial Loans: U.S. -6.4 % vs. UNY 1.6%.
Conclusion: Upstate NY community banks C & I loans are growing.

5. Annual Change in Real Estate Loans: U.S. -8.2% vs. UNY 2.7%.
Conclusion: Upstate NY community banks Real Estate loans are growing.

6. Annual Change in Commercial Real Estate: U.S. -4.7% vs. UNY 5.6%.
Conclusion: Upstate NY community banks are still growing CRE portfolios.

The Independent Bankers Association of New York State, on behalf of all Independent Community Banks in New York speaks with one voice in asking all news sources, government officials and politicians to stop lumping Main Street New York community banks in with all other banks and lenders, Wall Street included.  After all, community bankers lend funds locally to credit worthy borrowers, funds that local depositors have entrusted to them. Let us not, through generalization of all banks, undermine the confidence of the businesses, residents, schools and churches toward these generational stalwarts of our communities, the “Champions of Main Street”, New York Independent Community Banks.

The Independent Bankers Association of New York State, Inc. is the single focused voice of independent community banks in New York State since 1974.