Community banking: Where people come first

In a recessionary economy where the statement "too big to fail" has become associated with global megabanks such as Bank of America and Citibank, a less visible but encouraging trend is continuing to gain strength: the expansion of community banking.

More than 8,500 community banks, 98 percent of all banking institutions, are conducting business in 50,000 locations throughout the United States.

Most banks do not fit the profile of the supersized financial institutions. Almost 93 percent of all banks in the US have assets under $1 billion, with nearly 40 percent having less than $100 million, according to the FDIC.

Ironically, at a time when businesses are routinely shutting down, community banks are proliferating. These banks are often the partners of small local businesses, providing more than 35 percent of all loans under $1 million, according to the Small Business Administration.

"Community banks are locally owned, and their assets are being put to use in the community in such products as loans to small business and consumer loans," explains Aleis Stokes, director of public relations for the Independent Community Bankers of America (ICBA). "They are competitive in rates for home mortgages, understanding [of] the marketplace, and willing to support the local community in challenging times."

Customers looking for a personal relationship with their bank rather than simply a place to make financial transactions are increasingly seeking community banks.

Bruce Jensen understands that desire for a personal touch. A year ago, he worked to establish Town and Country Bank in St. George, Utah. With more than 33 years of banking experience, including positions at Wells Fargo and Bank of America, Mr. Jensen wanted to create a bank that emphasized personal services. For example, it offers "concierge banking," where customers sit with bank representatives at desks rather than standing in line waiting for a teller. It also offers to pick up deposits from its business clients, saving them the trip.

"Community banking is coming back to basics," say Jensen, the bank's president and CEO. "In the end, it is about customer convenience and understanding customer needs and goals."

Tired of getting a robotic answering machine when you call to reorder checks? Disappointed by low CD rates at megabanks? Livid over overdraft fees charged on your checking account despite the automatic transfers from your savings account? Perhaps it is time to establish a relationship with a community bank that will know your name, remember to link up your accounts, and respond to your individual needs. Wealthy customers have long enjoyed such services – and you should, too. Consider these steps if you decide that a community bank is right for you:

•Define your banking goals. Perhaps you are product-oriented with an immediate need for a high-yielding CD, a mortgage or refinance, or a car loan. If you are seeking savings products for college or retirement, check the range of uninsured investments the bank offers, such as mutual funds. For a more detailed assessment on how to find a bank that's right for you visit aba.com.

•Understand your banking personality. What services do you value? Do you expect to conduct your business electronically or in person? If in person, look for a local branch with hours that are convenient for your work schedule. If an entrepreneur or small business, will you require credit support for your customers as well as your firm?

•Recognize that community banks each have their own style or brand. Compare the "comfort" factor by visiting several local banking institutions and meeting with their bankers. Do they seem accessible and willing to answer your questions? Are they proactive in asking you about your short- and long-term financial goals?

•Identify the financial-literacy capability of each bank. Are the bankers engaged in educating you about new financial instruments? Does the bank sponsor seminars or offer reading materials that would support your efforts to give your personal finances a makeover?

•Find a community bank in your area by using the Community Bank Locator at the independent community bankers' website (icba.org). Verify that the bank is insured by the FDIC at fdic.gov/deposit/index.html.

•Compare rates at bankrate.com. Many smaller banks offered significantly higher CD rates than large banks in December. But rates have fallen since then at most banks, regardless of size, with financial experts predicting they will drift even lower over the near term.

• Dr. Kathleen Connell is a professor at Haas Graduate Business School, University of California, Berkeley.