Community Bankers Fear Dodd-Frank Regulations
YOUNGSTOWN, Ohio -- James Gasior, John Gulas and Patrick Bevack don’t lose sleep over derivatives, loans their banks have made abroad or trading in foreign currencies.
As the CEOs of three community banks in the Mahoning Valley – Cortland Banks, Farmers National Bank and the Home Savings and Loan Co., respectively – they’re more likely to stay awake nights on concerns other than derivatives, their foreign loan portfolios or fluctuations in the value of the euro or ruble or peso versus the dollar.
What gives the CEOs of the 10 largest U.S. banks, which account for 61% of commercial banking assets, cause for concern only indirectly affects Gasior, Gulas and Bevack. Instead, proposals to put all U.S. banks under the same Dodd-Frank regulations and Basel III capital standards – expenses projected to cost community banks more proportionately than the megabanks and regional banks – would hinder their banks’ ability to compete by making their loans more expensive.
Gasior, Gulas and Bevack know almost all their employees by name, they say, and all speak of the sense of family within their companies and the sense of community their employees feel in the towns and villages where they work.
“With community banking, you’re part and parcel of the community,” Bevack says. “Your fortunes are tied to the community. Our center is here.”
Adds Gasior, “We tend to be more involved in our communities [than the megabanks]. We provide the loans that small businesses need. We provide the mortgages that allow families to own their own homes. We have the ability to make decisions that affect people here.”
The employees who work for a community bank are more accessible to their customers, Gulas says. Because they’re headquartered locally, community banks have a better understanding of their customers and their needs.
“People have my direct number,” Gulas says, “and if I’m in, I answer my own phone. There’s no switchboard they have to go through. If I’m not in, I always get back.”
Data from those who would borrow money from a megabank have to conform to a template. Not only that, “The lending officers tend to be removed from the credit analysts and credit review,” Gasior says. “Our lenders take ownership of a loan.”
Indeed, during the Great Recession, regional banks that serve the Valley had “customers that no longer fit their profile,” Gasior says, to the benefit of Cortland Banks. Such small-business owners were encouraged to find another lender, which they did.
“They went on to find another bank,” he relates, and now that this area is enjoying recovery, “those banks are now looking to move them back. Some [borrowers] may go back for the lower rate,” he says, “but most are rewarding us with their loyalty.”
There are few products megabanks offer that community banks, should they chose to do so, cannot offer. “With the development of technology, there’s little the big banks can do that we can’t,” Gulas observes. Whether extending a loan for $300,000 or $10 million, “That’s something we do every day,” the CEO of Farmers says.
“For a second consecutive year, the Mahoning Valley Economic Development Corp. has named Farmers [its] bank of the year,” he notes.
Smaller banks are willing to see to the needs of smaller customers in ways that regional and megabanks can’t or don’t, Gasior, Bevack and Gulas agree. “Big banks are very concentrated on the big deals,” Gulas says. “Community banks support the entrepreneur, the small businesses.”
In support of the small businesses and consumers of moderate means, “We’re sort of the ham in a breakfast of ham and eggs,” Bevack says. “The hen laid the eggs but the pig gave his all so you could have breakfast.”
In addition, because of community banks’ relatively small size, “We operate more like a small business and so we understand small business better,” Bevack says. The assets of Home Savings exceed $2 billion, those of Farmers National $1.1 billion and Cortland Banks $525 million.
“A community bank takes care of the smallest of the small,” Gulas says. “We have a small-business niche that helps them acquire real estate, with C&I [commercial and industrial] loans. And we help consumers.”
More than that, Farmers supports municipal lending, whether helping small fire departments finance a new fire truck or a police department finance a new cruiser, or acting as the depository for school districts and advancing short-term loans until property taxes are collected.
Farmers has also carved out a market in lending to religious congregations so they can build churches, add to them or perform routine maintenance of their physical assets.
The opportunities to advance one’s career might be greater at a community bank. Gasior, a certified public accountant who graduated from Youngstown State University, had offers from a large regional bank and Cortland Bancorp in 1990 when he decided to leave a Big 4 accounting firm where he had participated in its audits of government agencies, nonprofits and banks.
Another CPA advised him, “Smaller institutions often provide the best opportunities. And I’ve found this is true,” Gasior says. He began at Cortland as head of internal audit but quickly moved to chief operations officer and then to chief lending officer. The latter prepared him to take the helm when his predecessor left the bank.
“The chief lending officer is the chief business development officer,” Gasior explains. “You have a knowledge of the credit area and know how to secure credit and minimize the risk.”
A major concern to all community banks is complying with capital standards intended to keep banks deemed too big to fail from a repetition of the conditions in 2007 that nearly destroyed the U.S. financial system. Small bankers want U.S. officials to revisit their version of bank capital standards so Basel III requirements aren’t as burdensome on them.
While they favor increased levels of scrutiny to ensure their safety and soundness, Gasior, Bevack and Gulas say, the cost of compliance, much of it unneeded because they have systems in place, hits smaller banks unfairly.
“We don’t need that regulation,” Bevack says, “and it’s costly to comply. Those regulations are important [to oversee] complex institutions, but they aren’t needed for community banks.”
Even if community banks are exempted, he fears, “The examiners come around and say, ‘This is a best practice [you should adopt] and if we do, it hurts the customer because we have to charge them more.”
Should the proposed regulations take effect, banks with assets of $100 million to $300 million “will look for merger partners,” Gasior predicts.
Home Savings, Farmers National and Cortland Banks have every intention of remaining independent, their CEOs say. All look at the landscape, as they call it, and see a bright future for well-run community banks.
Farmers is looking to grow through acquisition as well as organically, Gulas says. “We’re looking for 15% growth year over year,” he says, and points to its offices in Columbiana County as sources of recent growth because of the Utica shale. The new branch in Howland Township in Trumbull County has also proved successful.
If Farmers does enter a merger or acquisition, “We’re not looking for a troubled institution,” Gulas says. “We’re looking for a smaller community bank that looks solid” and not necessarily in the Mahoning Valley.
With the sale of $114.8 million in troubled loans in late September, Home Savings took a giant step toward full recovery of its financial health. “We have a strong mortgage bank,” Bevack says, “that through all [business] cycles has been busy and profitable.” While Home Savings laid off staff, those let go were responsible for servicing those troubled loans and were no longer needed.
“We had over 200 foreclosures,” he explains. “We have 10 or 12 after the sale. You adjust your staff all the time. As we build back up, you do the opposite and hire.”
EDITOR'S NOTE: This story was first published in the November print edition of The Business Journal. CLICK HERE to subscribe.
Copyright 2012 The Business Journal, Youngstown, Ohio.