Little guys avoid Wall St. woes

Amid the collapse of big-name banks and investment firms, the little guys say they’re doing just fine.

From Washington Mutual to Lehman Brothers, America’s mortgage and lending crisis has crippled Wall Street, leaving many to question the stability of their bank accounts. But because small banks generally avoided mortgage dilemmas, many are seeing an increase in customers.

“In these times of economic stress, larger banks tend to cut back on lending,” said Laurence Pettit, retired professor of finance at the University of Virginia’s McIntire School of Commerce. “Small banks know their customers a little better and tend to be less restrictive in their loaning practices. Their market is not a national market; it’s a market within a town or county.”

Louisa-based Virginia Community Bank, which has eight branches in central Virginia including one in Culpeper, is having its best year since 1995, according to Steve Southard, senior vice president and senior loan officer.

He attributed VCB’s prosperity to its local market and lending practices.

“We’ve added additional staff and we’re actually gaining customers from some of the larger banks who’ve tightened up on their lending,” Southard said.

Because VCB has a smaller legal lending limit than large banks, Southard said, “We practice prudent lending practices.” In turn, that helps VCB and other community banks avoid the mortgage problems that led to the downfall of WaMu, one of the nation’s largest mortgage lenders.

As more customers switch from big to community banks, Southard said, more people are focused on FDIC coverage, “more so than any time in my 30 years in the financial business.” VCB participates with a group called CDARS, or Certificate of Deposit Account Registry Service, which provides full FDIC insurance on deposits up to $50 million.

In addition to community banks, local credit unions have also survived the market. One such institution is the employer-based Northern Piedmont Federal Credit Union, serving Culpeper, Fauquier, Orange, Madison and Rappahannock counties.

“Credit unions have remained stable in the volatile market,” said Karen Frazier, NPFCU business development officer.

Frazier said many of NPFCU’s new members could in fact be attributed to the economy, though most closed accounts were because of member relocation rather than economic reasons.

Membership has leveled off recently, Frazier said, but lending is down, which is where the nonprofit credit union primarily derives is income.

“When the lending changes, that changes the scale for us,” she said. “Our dividends are maybe lower than our competitors’, but the importance is to keep our customers’ money safe and our accounts sound.”

Because smaller banks and credit unions know their customers and do not make many mortgage loans or hold mortgage bonds, they were able to avoid many of the problems that have snagged larger institutions, according to Richard DeMong, professor of finance at U.Va.

His colleague Pettit agrees.

“Many say the strength of the American financial system is that we have capital available to fund business and business ideas,” said Pettit, who has participated in establishing a number of small banks.

“A big part of that is the really primary stake that small banks have in supporting small business and individual customers all over the country, so that when something happens in New York, it doesn’t bring things down in Culpeper.”

Catherine Amos can be reached at 825-0771 ext. 138 or .