Small banks have dough to go

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By all accounts, the sky is falling. The nation is in its worst economic crisis since the Great Depression. The White House wants swift action to bail out Wall Street. Congress is flummoxed. And taxpayers are called upon to foot the bill.

Yet on Main Street, some banks advertise that they've got money to lend, and urge customers to come and get it.

As big financial institutions collapse, merge, shrink, go bankrupt or find themselves subsumed by an even bigger financial institution, small banks are reaping the benefits. "Historically, banks like ours do better in rough times," said Hugh Lane, president and CEO of the Bank of South Carolina.

Lane said he has sold no sub-prime mortgages, has no foreclosures on the books, few past-due loans (0.02 percent of his loans are more than 30 days past due) and no broker deposits, which is investor money that's held by insured banks.

His is a traditional bank that sells old-fashioned products such as loans and securities, Lane said.

And that makes Christine Osborne very happy. Osborne owns Wonder Works, a toy retailer with locations in Mount Pleasant and West Ashley, and another on the way in downtown Charleston.

To fund her expansion she's borrowing money. To make sure her shelves are stocked for the holiday season, she's borrowing money.

Osborne, who's a Bank of South Carolina customer, said working with a local bank that can assess commercial trends and opportunities, and can understand the particular needs of its clients, makes all the difference. In short, local banks are more flexible, she said.

Tom Hood, president and chief executive officer of First Federal Savings and Loan Association of Charleston, said his thrift has been in the home lending business since its founding in 1934, when the economy was in the dumps and credit was hard to get.

Short-term loans were all the rage back then, he said, but First Federal introduced long-term financing at lower interest rates, and that helped the institution develop good customer relationships.

In recent years, as securities were infused with toxic sub-prime loans that eventually made them impossible to sell or trade, First Federal and other small banks avoided that risky business altogether, focusing instead on community-oriented products and services, Hood said.

"There were far fewer sub-prime loans sold in South Carolina (than elsewhere)," he said. Thus the health of the state's economy is "OK."

The condition of a small, community-oriented bank reflects the condition of the marketplace it serves, Hood said.

Josh Silverman used to work for Merrill Lynch, which was purchased by Bank of America last month for about $50 billion.

He said he saw the writing on the wall in 2006: There was a need for more alternative lending solutions. After all, Merrill Lynch was farming out a lot of business it considered too insignificant, Silverman said.

So he started Charleston-based Silverman Strategies, and became a registered investment adviser, helping to bring lenders and borrowers together through private equity or social venture arrangements. Silverman said the current blowup in financial markets has helped him.

"It actually made what I do more in demand," he said. "Because people need advice."

Big bankers and brokers don't always do a good job keeping their customers informed about the condition of their investment portfolios, he said. What's more, a lot of these managers now are out of work or moving between companies. So more people are calling Silverman for help.

In the mortgage realm, borrowers might encounter some difficulty, said Michael Chase, area production manager for Synovus Mortgage, an affiliate of National Bank of South Carolina.

Chase said his company has tightened its mortgage lending standards. A credit rating of 660, once considered so-so but good enough, now likely triggers a half-point add-on to the interest rate for a 30-year fixed loan.

Synovus is still processing as many mortgages as it can, then selling those loans to secondary markets such as Fannie Mae and Freddie Mac, which in turn have imposed higher lending standards, he said.

As for other loans, Synovus is focused on serving existing clients, Chase said. For the time being, new customers could be out of luck. And the loans that are sold tend to be carried on the company's own books, a big change from the recent past. Basically, Synovus is being extra careful, Chase said.

Karalee Nielsen, co-owner of Rev Foods, said she's depending on bank loans from local lenders to fund her new restaurant Taco Boy II. She secured her financing a year ago, and so far there's been no push-back from the banks.

The problem for her is on the revenue side: Customers are spending less and using credit cards more, which means Nielsen must pay more in bank fees, she said. They're being cautious.

"I think it's just the fear," Nielsen said.