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Housing Lender | Member FDIC
Community Banking
A Distinctive Value
Independent banking, or “community banking,” is as distinctive a value today, in an era of rapid consolidation of the banking industry, as it ever has been. These values can be seen on a level of the consumer and in the role that banking plays in underwriting the economic development of our local communities.
But first some statistics: Twenty years ago there were 14,300 FDIC insured commercial banks in the country. Today there are 8,315. Back then, 40% of household deposits were held by the banking industry, where today that share has shrunk to 14%. Where did the money go? It was converted into investments in mutual funds and money market funds, essentially securities, as differentiated from deposits in banks. The problem is, as a consequence, these funds are no longer available to make business loans and home mortgages, but are invested instead in other things outside the community. In addition, within the banking industry itself, there has been a considerable consolidation. That is, 84% of the banking assets are now held by 315 very large banks, leaving only 16% of the banking assets in the hands of the remaining 8,000 community banks.
In the public’s mind small banks have the reputation of delivering friendly, personal service. “Neighbors helping neighbors” is the tag line, at an affordable price – often times FREE. But why? Because community banks balance the priorities differently than larger institutions. The owners – shareholders – are people who reside in town generally. Likewise, the directors, officers and employees are members of the community. Their children go to school there. When it comes to making deposits or the recycling of them in the form of loans, the “who” and “where” of that process is influenced by what is familiar and is done in accord with local priorities. For example, it takes 20 deposit accounts of $5,000 each to underwrite a single $100,000 mortgage loan. Most deposits tend to be owned by those over 50 years old who are not using dollars any more for building families or businesses, whereas the borrowers tend to be under 50 and are in need of funds to expand family or business activities. In a very real sense, a community, independent bank is managing the financial resources of that community. It is a great philosophy and very good business. Providing an equipment loan for the local dry cleaner provides a ready and accessible service for the members of the community. Doing the same for a small manufacturing concern provides jobs for those who live locally so that they can afford to patronize the dry cleaner, and everyone has some deposits with the bank. This is recycling at its best: deposits, loans, jobs, deposits, etc.
Certainly each borrower has to present good credit and a viable business plan to warrant the risk of lending the depositors money to that entity, but in the close case the judgement whether to do that or not may depend largely on the character of the individual. Certainly, larger institutions can assemble an impressive array of information electronically and coordinate and underwrite a loan very quickly. By necessity, though, there is a whole spectrum of information regarding character and reputation which is not available to the larger institution to consider which can have a significant impact upon the approval process – on whether the project gets done or not.
Ten years ago the access to technology was a challenge for smaller banks. Not so today. Virtually, anything that Citigroup can offer can also be offered by the community, independent bank since the cost of technology has come down so smartly over the period.
Individual customers of banks today are seeking a safe place to place their funds, process their payments, and provide convenient access to the occasional loan. They are looking for a financial service provider who makes them feel smart, comfortable and secure with the arrangement. Though financial affairs are important and personal, they are also routine and ordinary. Larger institutions may be glitzy, but by virtue of their size, cannot be as sensitive to their customers’ needs or as flexible in their applications as smaller institutions can be.
So your best value is found at a community, independent, financial institution where more often than not you are a known individual. This is part of the American dream, an economy underwritten by individual self reliance and ready access to financial resources available locally, principally through the banking system. This fuels ideas and growth from the grassroots upwards. The funding of this process on a local basis starts right at home with the depositor who provides the raw material to fund the loan. The bank takes the risk and the community thrives. So it does matter, more than ever, where you choose to bank and acquire your financial services because it is not just about the money, its safety and its return, but also about who is managing it and how, and where and by whom it is ultimately being used.
George W. Hamlin, IV
President and CEO
Canandaigua National Bank and Trust Co.
72 South Main Street
Canandaigua, NY 14424
May 31, 2001
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