Hitting Home: Small banks thrive
08/17/09 7:49AM By Jane Lindholm
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(Host) Vermont is one of only two states in the nation that doesn't have any banks that took bailout money from the federal government. The other is Montana.
One reason is because Vermont banks are so small.
As part of our series Hitting Home about the Vermont economy, VPR's Jane Lindholm visited one of the smallest banks in the country.
(bell ringing as door opens. Teller: "Hi, how are you Mr. Goddard?" Mr. Goddard: "Quite well, and you?" Teller: "I am good today!" Mr. Goddard: "I can see that. If you was any better you'd be too good, right?" Teller: "Oh, yeah right." Mr. Goddard: "Hi Diane..."
(Lindholm) The First National Bank of Orwell is the ONLY bank in Orwell, a farm town of just over a thousand people in Addison County. It's the kind of bank where everybody knows your name.
When the bank was formed in 1832, as the Farmer's Bank of Orwell, the town was booming: a central part of Vermont's merino sheep industry it had a railroad going through it and benefited from being near the south end of Lake Champlain. In 1863, Congress passed The National Bank Act, establishing a system of national charters. The bank took one and changed its name to the First National Bank of Orwell.
It's now the oldest nationally chartered bank in New England and the 12th oldest in the country. And by all appearances, not much has changed. The bank is in the original brick building-the word BANK spelled out roughly in marble letters above the entrance. Some of the furniture has been in place for at least 100 years. Warm light filters through antique green lamps. The tellers still use old wooden coin trays and talk to customers through now-dull brass grates, below original signs that just say "teller."
(Bryan Young) "We've been compared to the wild west sort of thing. Certainly we're not the west and it's been here probably before the Wild West was considered."
(Lindholm) Bryan Young is the bank's Vice President. His dad is the president. Young is the fifth generation to not only work at the bank, but to live there. He and his siblings grew up in the house attached to the building.
(Young) "It's always been an extension of our home. So it wasn't unusual for us to come home from school, and we'd come into the bank and play around. They'd set us to work at counting a stack of cash and I'm sure most of that was done just to keep us busy. But that was not an unusual pastime for my siblings and I."
(Lindholm) To be sure sure, few banks - even in Vermont - are so small or so personal. But there also are no Wachovia or Bank of America branches here, either.
Economist Dick Heaps says the banks smaller size kept them from the excesses that hurt so many banks and so many consumers elsewhere around the country.
(Heaps) "Our banks followed a traditional, regional, local type of banking business. And as a result did quite fine in this recession. They're doing well now, they're earning profits. And I don't think there's any fear out there that a Vermont bank is going to fail. Vermont banks, if anything, might be taken over by somebody who sees them as a good bank."
(Lindholm) In Orwell, there's little interest in being taken over. Keeping the First National Bank of Orwell in the family has been important to the Youngs. So has been doing business the old fashioned way. The bank only has 19 employees and about 5000 customers. Bryan Young estimates that nine out of ten customers who walk through the front doors don't have to show any ID-the tellers already know them. It has $37 million in assets, compared to the $2.5 trillion at Bank of America. But Young says there are benefits to being small.
(Young) "Our size gives us the distinct advantage of being able to underwrite every loan. All of the loan officers sit down and discuss the merits of a loan and we can truly make a decision on every loan individually and there doesn't have to be any set of underwriting rules or any manual to follow. As cliché as it sounds, it's definitely not by the book. There is no book for us."
(Lindholm) Like most Vermont banks, Young says his bank has never been in the habit of making sub-prime loans. It has always been conservative. It doesn't offer credit cards. And it's now reaping the rewards. Both loans and deposits have increased as local residents have turned to their neighborhood bank for help in tough times.
(Young) "One of the things that saved Vermont in the current environment is that many many of Vermont's loans are different. They don't fit into neat little packages. You have a lot of older homes and homes with a great deal of acreage or homes with barns or parts of farms. And those quickly became unacceptable to the secondary market and the larger banks. And that's certainly not something that scares us or that we shy away from."
(Lindholm) Bryan Young admits that the small size of the bank is not only its biggest asset but its biggest challenge. There are only two branches and the bank can't compete with the services larger banks can provide. But its roots go deep with Orwell's stores, churches, and organizations. And that seems to be how everyone likes it.
Before vacations began this summer, a group of children marched down from the local elementary school with their teacher-who just happens to be Bryan Young's mother-to do some business.
(Child) "Can we please have a check for 350 dollars?" (Teller) "Now how are you going to pay for that check?" (Kids) "Right here. That's how much there is." (Teller) "Okay. Well, you know what I have to do, I have to count it." (Kids) Okay, yup, Mrs. S said." (Teller) "And who is the check going to be made to?" (Kids) "MALARIA NO MORE!" (Teller) "Okay! It's going to take me a minute..."
(Lindholm) The next generation of bank customers already getting their first taste of business at one of their town's oldest institutions.
For VPR news, I'm Jane Lindholm.