Maria Kacik | The Gazette

With a federal bailout and several banks going under, national news coming out of the banking industry has been gloomy in recent months. But local bankers are looking for a bright side in this economy.

The executives of three banks based in Medina County — Westfield Bank in Westfield Center, The Farmers Savings Bank in Spencer and Western Reserve Bank in Medina Township —admit that working in the current economy has its challenges. At the same time, they say, the economic climate also has created an opportunity for locally based community banks to prosper. The local banks have not received any federal bailout money.

Brian Harr, left, is senior lender at Western Reserve Bank in Medina Township and P.M. Jones is chairman. Working in the current economy is challenging, but it has also created opportunities for locally based community banks like Western Reserve. (Shirley Ware | Staff Photographer)

“The big banks have alienated a fair number of their customers recently and we’re the happy recipient of that business,” said Jon Park, president of Westfield Bank in Westfield Center.

Local control

“Talk to 10 bankers,” said Brian Harr, senior lender at Western Reserve, “and they will give you 10 different definitions of what a community bank is.”

Harr described a community bank as one whose shareholders are customers who live in the community the bank serves. Tom Lee, president of Farmers Savings Bank, said it’s a bank whose customers are local. And Park said it’s a bank that builds a relationship with customers and is there to serve them.

“It’s kind of the opposite of the big bank model — which is bureaucratic, self-serviced and pushes products,” Park said.

Ten years ago, Park said, many in the banking world predicted community banks would become obsolete and the big banks would flourish.

“The big bank strategy of the last 10 years has been bigger scale, less customer contact and competition on price. So they were able to grow market share because they were discounting,” he said. “But now we’re sitting here today and the big banks are very damaged because their business practices were probably not sustainable. And they are no longer discounting prices. They are actually raising prices.”

Now, he said, is the time the community banks offer a competitive price and also be able to build relationships with the customers.

“I don’t know who it was that decided that service is different from sales. They go together,” Harr said. “It is a lot more enjoyable to take care of your existing customers than it is to constantly be looking for the next customer.”

At Western Reserve, the company encourages its customers to come into one of its branches, talk with the bank’s officials, relax with a cup of coffee and sit down with their teller to do business.

“We like the fact that you come in, make your deposit and say hello to everyone and take your time,” Harr said.

The community banks have the ability to stay small, Lee said, and they are able to make their own decisions in the same office where they do business with their customers.

”The big banks just want to grow, grow, grow. They just want to see how big they could get, whereas at our bank I don’t care if we shrink,” he said. “We’re as busy as we want to be. Bigger just brings more headaches. You lose control.”

Being small, he said, allows banks to get to know their customers personally.

“We can determine whether or not we make a loan, and we can put a lot of weight on their character,” he said. “A lot of these banks are taking applications over the Internet. I’d like to sit down and talk to somebody and get a feel for their character. It’s not so much just what’s on paper.”

Challenges

Last month — after several banks nationwide collapsed in the previous year — the FDIC announced that in order to replenish its insurance fund it would issue a one-time special assessment 20 basis points to all banks. That would mean later this year each bank would have to pay 20 cents for every $100 of domestic deposits.

The assessment hasn’t been made official yet, but area community bankers already are saying the charges would be tough on the industry.

“The small community banks are going to pay for the large mega-banks’ lack of good, sound management, as far as I’m concerned,” Lee said. “It’ll actually hurt these community banks. That’s a substantial sector of the banking business in the United States. And there will be a few community banks that probably wouldn’t survive that.”

Lee said his bank may have to resort to higher interest rates on loans or higher service charges to customers to offset some of the fee.

Park said his bank will end up paying around $500,000 for the special assessment. That money would have gone to growing the company.

“That’s a lot of other jobs we could have been adding or creating,” he said.

But Lee said that’s not the only hardship banks may face. As more people in the area lose their jobs, customers are unable to make payments on loans, he said, but Farmers Savings Bank does its best to avoid the foreclosure process. He said the bank works with customers to modify the loan agreement if people “have run into a little hardship.” In such a case, the bank may lower the payment or request interest-only payments, he said.

“We don’t want their car. We don’t want their house. We just want them to pay the loan,” he said.

Banking’s future

Lee said Medina County hasn’t seen the end of the tough economic times.

“We’re going to see more people lose their jobs. We’re probably going to see more people past due on their loans. … I’m real concerned about the future,” he said.

He said it’s going to be just a matter of weathering the economic storm.

“I think we’ll be fine here. We’ll just have to — like a lot of banks — take some lumps. But hopefully they’ll be minor lumps in relationship to our capital and we’ll be all right.”

But area community bankers say that because of the economic struggles the entire banking model will change.

Park said nobody knows what the big-bank model is going to look like, but he said it is going to change significantly.

“I’d say this means the community banks have the opportunity to get more market share, to grow and possibly thrive more so and better than they have in the last 10 years,” he said. “The momentum used to be on the side of the big banks but shifted. And I think it will stay that way for some foreseeable future.”

Harr agreed. He said that’s what will help the banking industry march through the current economic climate.

“There are a lot of advisers right now that are telling consumers to use their local community bank. That’s where the safety, the stability and the consistency over time is going to be,” he said. “I really believe community banks in this country will be who leads us out of this.”

Contact Maria Kacik at (330) 721-4049 or mkacik@ohio.net.

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Some stats on three banks based in Medina County:

The Farmers Savings Bank

111 W. Main St., Spencer

Employees, as of Dec. 31 – 27

Branches – 2

Total assets as of Dec. 31, 2008 – $218,487,000

Total assets as of Dec. 31, 2007 – $216,618,000

Percent of growth between 2007 and ’08 – 0.86

Western Reserve Bank

4015 Medina Road, Medina Township

Employees as of Dec. 31 – 37

Branches – 4

Total assets as of Dec. 31, 2008 – $178,944,000

Total assets as of Dec. 31, 2007 – $159,284,000

Percent of growth between 2007 and 2008 – 12.3

Westfield Bank

2 Park Circle, Westfield Center

Employees as of Dec. 31 – 50

Branches – 3

Total assets as of Dec. 31, 2008 – $384,599,000

Total assets as of Dec. 31, 2007 – $310,953,000

Percent of growth between 2007 and ’08 – 23.7

Source: FDIC.gov