Giving Back
By reinvesting in the places, people and projects that support them, community banks breathe life into suburban towns
by Sharon A. Shaw


With the “Occupy” movement dominating news headlines—and Christmas just around the corner—it calls to mind a man named George Bailey, the lead character in the holiday Frank Capra classic, “It’s a Wonderful Life.” This humble banker, based in the fictitiously idyllic town of Bedford Falls, reminds us that locally owned banks were once the foundation of a community, and their bankers were its pillars.


In fact, they still are. And, with the Occupy movement urging consumers to move their money away from big banks and into smaller, community-based financial institutions, locally based banking could receive a relative boon in the months and years ahead.


The first U.S. bank was chartered in 1782. Now, with more than 91,000 bank offices and branches and 4 million ATMs, there are more banking locations in the United States than movie theaters or shopping malls, meaning consumers have no shortage of options—from the largest banks with national or even global reach, to strong regional banks with numerous branches covering a multistate area, to the community banks that serve localized areas.


Lately, the fees charged by big banks have gotten a lot of attention. Although sources suggest that while two years ago 75 percent of all banks offered free checking, now fewer than half do; 60 percent more accounts carry fees and balance requirements than they did a year ago. The Federal Reserve estimates that banks process 40 billion checks each year, valued at a total of almost $40 trillion—so the associated fees are significant. Electronic payments account for more than two-thirds of all payments, with debit-card usage exceeding all other forms of noncash payments; processing and infrastructure costs associated with these transactions require some banks to charge such fees.


In light of risky investments, which required a bailout in 2008, and the continuing effects it has wreaked on the U.S. economy, many consumers are moving their accounts to smaller locally based community banks. A recent survey conducted by Forbes magazine found that 32 percent of respondents said they have “considered moving some or all of [their] banking from a large national bank to a community bank or credit union because [they] are unhappy with the policies or behavior of large national banks.” Fourteen percent said that in the past year they have actually moved some of their banking from a large national bank to a community bank or credit union, and 9 percent claim to have done so as a form of protest.


The fee-based system is “not the model that community banks use to generate revenue,” says Nick DiFrancesco, president and CEO of Pennsylvania Association of Community Bankers (PACB), which is based in Harrisburg. Instead, many community banks rely on the spread–the difference between the interest rate collected on loans and that paid on deposits–to keep costs low and provide services with few or no fees. It costs a big bank $350 to $450 year to maintain an account and only $175 to $250 for a small bank, according to economic research firm Moebs Services.


“We believe community banks are the right choice for most consumers,” says DiFrancesco—and the reasons are many. First, the deposit generally stays in the community where it is used by other members to start a business or buy a house.  According to the PACB, on average, approximately 95 percent of a typical community bank’s loan portfolio is reinvested in the community, usually within 50 miles of a bank office and almost entirely within the state borders. The average community bank in Pennsylvania has more than 30 percent of its holdings in commercial loans with local businesses, and more than 50 percent in mortgage loans to local homeowners.


According to DiFrancesco, participation in a community bank can “guarantee money is recycled into the community more than any other [financial] institution. Community banks are built to suit Main Street.” Although many small-business startups find rules in place at large banks that prohibit them from receiving a loan, he says, community bankers instead listen to entrepreneurs’ needs, evaluate their individual situation and use knowledge of the local community to provide more flexible financing options.


Furthermore, a community bank is more likely to consider the good of a localized area because, as DiFrancesco says, “they rely on the community.” He points out that “the banker, the president, the board members live in and are involved in the community—the chamber of commerce, Kiwanis, Rotary, etc.” To be fair, big-bank representatives may be involved with these organizations as well, but a community bank is unique because the individuals participating locally are “the decision makers,” he says.


Familiar Faces

Joseph J. Tryon Jr., president and CEO of Hatboro Federal Savings and Loan, shares many of DiFrancesco’s views.


How many banks can you go in and talk to the president of the bank just by walking in the lobby? Most community banks have a president who is available for customers,” he says. “Community involvement is essential, something many large banks don’t have the ability or propensity to do. The more involved an organization is in the community, the more you’re exposed to new people in the community and the more you can grow.”


Hatboro Federal Savings and Loan, which was chartered in 1941, is still headquartered in Hatboro, with branches in Jamison, Warminster and Warrington. Similarly, 64 percent of banks have been in existence more than half a century, and 35 percent have been in business for more than a century.


“I always like to walk into a place that knows who I am,” says Tryon, who has been president of the bank since 1987. “When you walk into a place like Hatboro Federal, they usually know you by first and last name, and that gives you a feeling of confidence in the bank. With a large bank, that usually doesn’t happen. Community banks take great pride in knowing their customers.” 


Confidence is an important consideration in choosing a community bank. DiFrancesco acknowledges that local banks based in communities where the real estate market suffered terribly in the economic collapse have been subject to failure, whereas most community banks have remained stable.


“When you look around the nation, Pennsylvania received among the least negative impact from the financial crisis,” he says. “Community banks do not make the risky investments that big banks do.”


This conservative approach has helped to fuel the growth of Tryon’s community bank. “In the past three years we certainly have seen an influx of customers,” he says. “We have customers coming in every day wanting to switch banks to a community-banking institution because they are fearful of the larger banks. It was the larger banks that had to be bailed out three years ago, and [customers] don’t want to be part of that. We’ve had a huge number of accounts opened in the last three years. … People are looking for a safe harbor.”


Big banks do offer some advantages, of course, which are due in part to their size and reach. Because most of them do not specialize, per se, larger banks are typically able offer a greater range of products, programs and services—including a thriving commercial business—that include convenient hours at locations nationwide or online. 


According to DiFrancesco, however, the idea that small banks provide limited services is just not true. “Most community banks offer world-class services,” he says, including online banking and rewards programs. In fact, he says, one might see cutting-edge services provided by small banks first because they “are easier to implement at a local bank than nationwide.”


When choosing a local bank, potential customers should ask about the products it offers and determine if the bank suits their needs. Also, DiFrancesco says, “Consider what a bank does for the community.” Ultimately, it is the responsibility of the customer to think about the “ripple effect” that banking locally will have on his or her community—a principle that was certainly understood by the residents of Bedford Falls.

—Bill Donahue contributed to this report.