Dodging the credit crunch

LEWISTOWN - Financial experts in the Juniata Valley say there is good reason to be optimistic about the future, despite the deluge of daily reports regarding the troubled state of the U.S. economy.

Even in the face of fluctuating oil prices and fallout from the subprime lending crisis, the region's community banks remain strong and have avoided the financial pitfalls experienced in recent months by some of the nation's larger lending institutions, two local bank executives said.

While some national lenders, such as Fannie Mae and Freddie Mac, have had to rely on federal assistance to help them stay afloat, both Kish Bank in Reedsville and Juniata Valley Bank in Mifflintown reported positive gains made during the second quarter of this year.

The positive performance of the area's community banks is reflective of the inherent strengths possessed by the local communities they serve, said Francis J. Evanitsky, president and chief executive officer of Juniata Valley Bank.

"There are many positives in the Juniata Valley. We have Lewistown Hospital, its nursing school, South Hills School of Business and a community college under development," Evanitsky said.

"We've spent millions of dollars on new highways, and we have First Quality coming in and providing a large number of job opportunities, both now and for the future," he continued.

William P. Hayes, president, chairman and chief executive officer of Kish Bank, also attributed the success of local banks to the region's many assets.

"The cost of living is lower and we have abundant natural resources. We have a great hospital, and a great school district that is reinvesting in itself," Hayes said. "The people of the area also have a great work ethic, which employers - and bankers - find attractive."

Avoiding the crisis

Another part of the reason area banks have remained strong is because they have avoided making the same mistakes as some of the national lenders, Evanitsky said.

"Regarding some of the national banks- the big ones- you hear horror stories. I can't say where the responsibility lies, but it appears a lot of bad moves were made and people could not afford the positions they were putting themselves in," he explained.

"Lenders need to be creditable when it comes to putting people in a home they can afford. If we don't do that, we're not helping the customer," Evanitsky continued. "I think this is what separates community banks from the others."

Evanitsky also said he believes the practice of securitization - the process of one lender selling loans to another lender - has contributed to the current problems in the financial industry.

"I think when securitization was implemented, the controls over mortgages fell somewhat by the wayside. When you have a group of loans sold by one lender to another, and then another, and so on, you lose that personal contact with the customer," he said.

"Our philosophy is what is good for the customer is good for us. We need to get back to basics - you need to know who you're doing business with," Evanitsky continued.

"We try to work with the customer and help them find the type of loan they can afford. We help to build them up and allow them that sense of ownership and pride in their community.

"There always will be someone offering better rates or a better deal somewhere else, but the old adage applies - if it sounds too good to be true, it probably is," he said.

Public perception

In recent months, the national media's news coverage of the current economy has contributed to a lot of public misperception regarding the overall strength of the nation's banking system, Hayes said.

"You can't turn on the TV without a story about the banking system crisis. What used to be a subprime mortgage lending problem has grown into a real estate market problem in which we're seeing previously inflated home prices falling," Hayes explained.

"It may be good copy, but overall, the banking system is very, very strong. Nationwide, there is $1.36 trillion in capital," he said.

Hayes said the nation's banking system includes the Federal Reserve, the Federal Deposit Insurance Corporation and other regulatory agencies that manage the country's financial industry.

"It's very hard for a bank to just implode overnight. Compared to the real estate crunch of the early '90s, there are very few banks on the problem list," Hayes said.

"For a bank that did a lot of real estate investing in a high market area, such as Florida, there may well have been some problems for them in their real estate portfolio," he continued. "But central Pennsylvania is a good example of stable banking and real estate prices that didn't spike, so the (local) interest rates and home prices are not going to come down significantly."

Conversely, Hayes said, large investment banks - like Bear Stearns, Goldman Sachs and other Wall Street institutions that have had billions of dollars in real estate securities - don't have commercial banking services and are not regulated by the banking system.

"They've lost hundreds of billions of dollars in the course of the current financial crisis," he said.

Contrary to what may be public perception, the negative impact on those major investment banks has not spilled over into the federally regulated banking system, Hayes explained.

"On TV we hear stories about how the banking system is (supposedly) collapsing, but the truth is no one has ever lost a dime in an FDIC insured deposit. The depositors really don't have any risk," Hayes said.

"When there are 8,500 banks in the U.S. and only 92 of them are identified as having 'problems' in the current market, it's a small number compared to the 1,500 banks that were on the problem list during the real estate crunch in 1991," he continued.

Hayes also described how community banks like Kish differ from the national investment banks.

"We're not only focused on our local markets, we know them. For example, we were aware of subprime lending when it emerged in the late '90s, but that didn't mean we became involved in it," he said. "When a bank knows its market and stays within the capabilities of that market, it's not likely to make a big mistake.

Hayes also said Pennsylvania banks tend to be conservative by nature.

"You never 'bet the bank.' Regulators check our available capital versus the risk of the bank's investments and financial activities. They make sure that banks have sufficient capital to back it up and protect their depositors.

"Most banks have been around a long time. Kish has been here 108 years, through economic slow downs, real estate crises and national difficulties. To some extent, we reflect the nature of the community," he said.

Homes and businesses

For the potential home buyer who may be feeling apprehensive about the current real estate market, now is probably a very good time to purchase property in the Juniata Valley, Evanitsky said.

"I think it's an excellent time to purchase. There is a large inventory of homes available, and our mortgage activity actually has increased this year," he explained.

"If you have the job stability you need, and we can sit down and talk with you, we can help find the right mortgage for you. There are low rates and a variety of mortgage programs available," he continued.

Evanitsky also said dedication to its customers is something the bank takes very seriously.

"If it's not right for the customer, it's not right for us. No business is infallible, but we've tried - and I think most community banks are trying - to do the right thing by our customers and shareholders, and ride out the ups and downs of the current financial market," he said.

Hayes also gave a positive assessment of the local real estate market.

"No question, this is a good time to take advantage of some opportunities ... if you're financially stable, have the right resources and there is money available," he said.

"Compared to the national real estate markets, in the first six months of 2008 we've done $6 million in mortgage loans - that's a lot for us. As far as a business investment, you always need a clear business plan. It should reflect that there will be ups and downs.

"Do you want to start a business right now? If you have a compelling business plan and you know the demand is there for your product or service, I'd probably encourage you to go ahead," Hayes said.

Local development

Both Evanitsky and Hayes said community banks play an important role when it comes to fostering local economic development.

"Community banks have the overall responsibility to help communities to grow. The vast majority of deposits we have come from the communities we serve," Evanitsky said.

"I feel we have an obligation to help with the economic development of the community. The more development there is, the more successful the area businesses and industries are - not just the banks. It's a win-win situation for everyone," he said.

Part of that development is realized when a community bank returns deposits to its communities and creates economic vitality, Hayes said.

"For example, a depositor puts $100,000 in the bank and the bank then makes a $100,000 loan to a business. That business then spends that money on goods and services from other local businesses, and those other businesses also make deposits to the bank," he said. "The money stays in the community and fosters economic growth, thus raising the quality of life in the community."

Fixed assets

Recent improvements in regional infrastructure also have gone a long way toward opening the doors of the Juniata Valley to outside investment, Hayes said.

"In purely economic factors, our location to markets and transportation infrastructure is key. The completion of the Lewistown Narrows project was instrumental, and new industries are locating here as a result," Hayes explained.

"The major obstacle in the past was that businesses couldn't get their goods to outside markets easily. Now, we're slowly but surely correcting that," he said.

"The quality of life here is great, and it's become more accessible to the rest of the population in the Mid-Atlantic states," Hayes continued. "I have a friend who recently went fishing. He told me he met two guys who drove eight hours from Virginia to go trout fishing here."

Evanitsky said he believes the rejuvenation of an area begins with its infrastructure.

"I believe that aids in development more than anything else. We now have State College and Harrisburg moving closer to us. A lot of people may not work here in Mifflin and Juniata counties, but they're going to live here," he explained.

"I think we're on the edge of something big," Evanitsky said. "I think the whole community is going to be successful, I really do."