Thursday, April 10, 2008

Community Banking Week, PA Version

Buy Local is a common theme in progressive circles. There are various ways of doing that; with food it is farmers market. With retail it is buying from locally owned businesses. Financially, it is keeping your money in a community bank.

This is Community Banking Week, with the theme “Where Tradition and Innovation Meet.” The Pennsylvania Association of Community Banks represents nearly 260 banks in the state. According to their website:

You know the owners of your community bank. You know the managers who work there. You know them because they live in your community. They work where you can see them and reach them by telephone. Decisions and policies are not made by a nameless "board" or handed down by bank officers hundreds or thousands of miles away. The community banker makes decisions based on what he sees happening to the people he knows and cares about, not solely on computer printouts and trends reported in the financial papers.

The people who manage a community bank are accessible. They listen and respond promptly. They are committed to the community they serve, not a corporate headquarters far away. They make policy and credit decisions based on local factors, which they understand because they see them evolving and affecting their own lives every day.

Only through a community bank do dollars earned at home, spent at home, and banked at home make their way into investments which nourish the community which made them possible.

This is backed up by research. National banks may have specialized services and personnel but they also have set standards and policies. As noted by American Banker last month:
Because community banks have the flexibility to customize the service offered to current and potential customers, they have a significant competitive advantage over the multibillion-dollar banks that must offer standardized products and service across different target markets and different geographical areas. (Bills)

It is also said that these community ties mean community banks can take into account more than just a credit score when evaluating a loan application; they can also look at the individual and, if applicable, the family’s history in the community.

There is still much to be said for local market knowledge. It’s an advantage that usually trumps low-ball appeals from newcomers. Every bank has its share of price-sensitive customers, of course, but for many community banks, and some larger institutions, as well, market knowledge, customer knowledge, expertise, and service are still selling points. (Streeter).

This goes both ways. Like community based agriculture, the money you deposit in a community bank stays in the community. According to PACB:

Your local community bank works to put Pennsylvania First by circulating its monies right back into Pennsylvania. On the average, approximately 95% of the typical community bank's loan portfolio is reinvested in the community, usually within 50 miles of a bank office, and almost entirely within the borders of Pennsylvania. The average community bank in Pennsylvania has over 30% of its holdings in commercial loans with local businesses, and more than 50% in mortgage loans to local homeowners.

Promotions can also be localized. In 2006 the Harleysville Savings Bank of Harleysville, PA won a national award for its “Trusty Club,” program for kids under 15. Named after the bank’s mascot, Trusty, the program encouraged kids to start savings accounts and offered reward incentives. Trusty also makes classroom visits. Trusty Club accounts brought the bank over a million dollars in deposits (Holliday).

Most local banks were able to avoid the worst of the subprime mess; some did not offer subprime loans at all. Note these quotes:

Despite an inverted yield curve, increased reliance on higher-rate deposit funding, and slowing loan growth, banks with total assets of less than $3 billion posted higher net interest margins, on average, than their larger competitors, and the gap between the two groups continued to widen (Mambrino).


Community banks’ wealth management businesses are holding their own as weakness in housing has thrown major banks into turmoil and the declining stock market has shrunk the values of assets in investment accounts throughout the country (Ryst).

To put this in local perspective:

The day after Fulton Financial Corp. in Lancaster, Pa., reported last week that is fourth quarter earnings fell 18% and nonperforming assets more than doubled, its stock shot up roughly 14% and has held steady since.

The $14.9 billion asset Fulton is just one of many community banking companies whose share prices soared last week, even after they reported less than spectacular earnings. (McGeer)

Later in the same article:

Consequently bargain hunters are on the prowl for community bank and thrift companies that, though hardly immune to the souring real estate markets, are weathering the downturn better than expected. (McGeer)

Even in better times, the chance to have your money going directly back out into the community allows you to have a more direct impact in the businesses, especially the small businesses, that start up on your Main Street.

As a personal note, Mr. J and I moved savings and checking accounts to a community bank about 15 years ago. We also own a few shares of stock in the bank. I do see the president of our bank out at community events and feel comfortable going over and saying hello. The woman who arranged our loan for a home repair project asks me at PTA meetings what kind of job the workmen did and if we would recommend them. Interactions like this strengthen the social fabric of our towns and neighborhoods.


Bennett, Rex, “Can David compete with Goliath?” Bank Marketing 40 #1 (January / February 2008): 30-35.

Bills, Steve, “Core vendors find a market for small bank mobile tools,” American Banker 173 #52 (March 17, 2008): 11.

Holliday, Kalen, “Beyond the bottom line,” Community Banker 16 #1 (Jan 2007): 46-50.

McGeer, Bonnie, “Absent credit meltdowns, small banks gain favor,” American Banker 173 #19 (January 29, 2008): 5.

Mambrino, Vanessa, “Banking’s top performers,” ABA Banking Journal 99 #6 (June 2007): 28-64.

Ryst, Sonja, “Small-bank wealth units weather market turmoil,” American Banker 173 #47 (March 10, 2008): 16.

Streeter, William W. “The chief business of banking is business,” ABA Banking Journal 98 #7 (July 2006): 6

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