Community banks battle identity crisis

DeWayne Bartels

Some local community bankers say the subprime loan crisis gripping big banks, and making headlines, is chipping away at the trust people put in all banks, spawning an identity crisis of sorts.

Several local community bankers said last week they are fielding questions from their customers about whether their bank is sound.

Consumer confidence, they say, is being eroded by non-stop media coverage of the subprime meltdown; which brought down giant investment bank Bear Sterns last month, local community bankers said.

Yet, despite the fears customers are expressing, some local community bankers say they are not taking a proactive stance to assure customers their banks are not caught up in the banking crisis.

Robert Wingert, president of the Community Bankers Association of Illinois, said if Illinois’ community banks fall short in any business area, it is in marketing themselves during these turbulent times. It is a situation for which he takes some responsibility.

A different animal

Andrew Black, president and CEO of Princeville Bank, said, the definition of a community bank is one that is service-oriented, locally owned and managed.

Black said the community banker tends to be much more conservative than their big bank counterparts.

“We try to make sure someone doesn’t get in over their heads,” Black said.

“We take a mom-and-dad approach.”  

Steve Backlund, chairman of Better Banks, concurred, saying his bank group has grown over the past decade because of the bank’s “conservative bent.”

“We’re not going out to look for things that make a quick dollar,” Backlund said.

Wingert, like Backlund, said one of the things setting community banks apart from the investment banks, now in trouble, is that conservative nature.  

“Community banks are not greedy and they are unwilling to gamble,” Wingert said.

“Community banks lost a lot of opportunities over the past few years to banks that were willing to make loans to people who weren’t a good risk. We can see now who is in trouble.”

Gordon Honegger, co-chairman of Morton Community Bank, said the subprime crisis is not doing his bank any harm.

“With $100 million in assets we’re just fine,” Honegger said.

He said the subprime loan crisis is not even a blip on his banking radar screen.

“The subprime crisis is non-existent for community banks. We control our own loans,” Honegger said.

Just last week, he saw close-up the fallout from the subprime loan meltdown.

Honegger was in Phoenix where he saw $75 bus tours that shuttled interested buyers to dozens of foreclosed homes for possible purchase.  

Jay Glatz, vice-president of marketing for State Bank of Speer, said unlike the big investment banks, community banks shy away from dealing with people who could get in over their heads financially.

But, Glatz said, community banks are feeling the fallout of the subprime mortgage mess — despite staying out of it.

“It has impacted us, because so many banks did get into subprime loans. The government has tightened credit. We were tight to begin with because that was responsible, but now it’s even tighter,” Glatz said.

“But, our customers are our customers. If they borrowed from us before, they probably still can now, as long as they didn’t get into a bad credit situation. We’re doing fine. We’re doing a lot of refinancing.”

Unappreciated

Backlund said banking customers, bombarded daily by stories about the problems in the banking industry, do not always appreciate the difference  between community banks and the Wall Street-type investment banks now in trouble.  

“Are there people who tar us all with the same brush? Yes. There are others who know the difference,” Backlund said.

“But, I suspect there are more of the former than the latter.”

Dave Swearingen, vice-president and a director of the Heights Bank, agreed that a lot of people do not know the difference between banks.

“Customers have come in here asking if we are in trouble, Swearingen said.

“It’s hit and miss. We had a client call after Bear and Stearns fell to be assured we are sound. There is concern out there.”

Muted

The bankers recognize that many people, including their own customers, do not recognize the difference between a community bank and an investment bank.

They also recognize that some of their customers are worried about whether their bank is sound.

So, what are bankers doing about this situation?

For some, the answer is nothing more than assuring customers if they ask.

Backlund said he would love nothing more than to advertise more heavily and assure customers that the Better Banks are sound.

But, he is not going to do that.

And, he said it is not about cost.

“Would I love to do that? Yes. On the other hand, I don’t want to create an inference that there are other banks around here that aren’t sound,” Backlund said.

“I don’t want to do it at the risk of the local economy. It’s too important to take the risk. It’s bigger than we are.”

Glatz said his bank has cut back on advertising since the subprime mess arose.

“For years, we just relied on word-of-mouth advertising. As we moved into the Peoria market, we realized we had to spend a lot more on advertising,”  Glatz said.

Glatz said he would love to see advertising dollars climb again.

But, he said, State Bank of Speer has not abandoned trying to reassure customers.

Glatz said the bank has been sending out newsletters to customers to keep them updated, and offer reassurance that their bank is sound.

Wingert said the association he heads has an image component which is updated every six months so member banks can  get to new marketing ideas.

But, Wingert said, since the subprime issue arose and put everyone on edge that marketing component has not gotten the attention that it should have.

Wingert said he had to admit the association has not taken a proactive approach to marketing to consumers that community banks are sound.

“That’s something we haven’t done much of. There’s no better time to do it than now,” Wingert said.

“It’s probably high time to explain the distinctions.”             

Picking up the pace

Honegger said, in his view, now is not the time to cut back marketing budgets for banks.

“We’re increasing ours. We just sent out a mailer,” Honegger said.

He said the subprime loan crisis has a silver lining for community bankers, if they take advantage of it.

“A lot of people are going to be coming back to community banks,” Honegger said.

“It’s tough to hear bankers bashed everyday,” Honegger said.

But, he said, he will endure.  

“This is a good blip on the banking radar screen for community bankers,” Honegger said.

It’s bringing people back to us.”