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Giving Credit 

If it’s Friday, there must be a bank failing somewhere across the country.”

That was the dire beginning of a CNNMoney.com article written by David Ellis toward the end of February. Just a few days later, National Public Radio aired some good news: There had been a hiring spree, even in this economy. Then the sobering news: it was the Federal Deposit Insurance Corp. adding hundreds of fresh employees to the new Irvine, California, office to deal with the country’s massive number of collapsing banks. According to the FDIC’s failed banks list, 25 banks closed in 2008 alone—a number that’s just two less than the list records for the entire scope of October 2000 through the year 2007. So far in 2009, there have been more than a dozen additional closures. But if you scroll down the list of failures, you won’t notice one community bank from the Hudson Valley.

In fact, if you talk to Rhinebeck Savings Bank’s President and CEO, Michael Quinn, he’ll tell you that while Washington Mutual and IndyMac were going under in 2008, his bank experienced its best year in earnings. “I think part of [that is due to] the good economy we’ve had in this area and part of it is the lending that we do,” he said. “We don’t do subprime lending, which is creating most of the headlines in the country, and we are a fair lender. People want to say it’s conservative, and maybe it was, compared to practices that have been out there over the last 10 years. But a lot of those practices are proving to be completely insane.”

Especially now, community banks seem more comfortable identifying themselves as conservative—what was once viewed as a negative is now a buzzword for peace of mind. Quinn said he recalls instances where customers would become frustrated that Rhinebeck Savings wouldn’t meet the loan terms that lenders like Countrywide Financial were willing to offer. Now that the bubble has burst, it’s the community financial institutions that are poised to vocalize the long history of products and services they’ve offered. Many of the community banks in the Hudson Valley are more than 100 years old and have weathered the Civil War, the World Wars, and the Great Depression, as well as more modern financial turmoil like the savings and loan crisis in the late ’80s and early ’90s. Throughout this time, most of these banks have stuck to their traditional terms of lending and have steadily, and safely, grown because of it.

James Davenport, the president and CEO of Rondout Savings Bank, said that the big bank failures and forced mergers of the past year are mainly due to drifting from banking basics—abandoning sound loan underwriting principles and then owning securities backed by questionable residential mortgages. At his bank, they focus on the time-honored techniques of determining credit merit. “Rondout Savings Bank has always had a responsible, conservative credit culture,” he said. “We approach our loan underwriting from a commonsense perspective. We get to know our borrowers and require down payments, cash flow, decent credit scores, and collateral. Our strong asset and capital base underpins our rock solid balance sheet.”



Knowing the borrower has also been a major key in differentiating community and national banks. Quinn said that Rhinebeck Savings makes a point to get to know the people in the community, and by doing so, it makes it easier to help them through difficult times. “One of the famous ‘five Cs’ of credit is character, and I think local banks know the character base of customers more so than large banks that are making decisions out of the area,” he said. This community knowledge impacts the bank’s lending choices; Quinn said Rhinebeck Savings is continuing to give money to local businesses that are dealing with tough times in part because the bank believes in their experience and talent, and that they’ll still be standing at the end of the day.

Paul Merski, chief economist for the Independent Community Bankers of America, also touched on this point in an address before Congress in January. Merski told lawmakers that while community banks represent only 12 percent of bank assets, they make 20 percent of all small business loans and make half of all small business loans under $100,000. The businesses they fund are responsible for creating 70 percent of the net new jobs in the country.

  • Kelley Granger finds out the reasons why local banks are thriving.

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