You Can Bank On The Personal Touch - community banking - Industry Overview

Nation's Business, June, 1999 by Sharon Nelton

Community banks--unlike some megabanks--can offer small firms advantages such as local decision making and long-term relationships.

A year after a larger bank bought York State Bank in Elmhurst, Ill., William C. Gooch Jr., York's president and CEO for 20 years, got the ax. At the urging of a local businessman, Gooch did what a lot of squeezed-out banking executives are doing in this era of bank consolidations: He started his own bank, Community Bank of Elmhurst

Gooch's bank opened in a trailer in May 1993 with $6 million in capitalization raised from local business people. Today it has assets of $77 million and its own building.

Most important, the bank gives Gooch and his staff the opportunity to practice the kind of banking they believe in--community banking, in which bankers know customers personally, build long-term relationships with them, and become their allies, not their adversaries.

"We know the names of the dogs who come to the drive-in window" with their owners, Gooch says, adding: "If we remember the dogs' names, we certainly remember the people's names."

Gooch and Community Bank of Elmhurst are representative of a surge of bank start-ups that has been occurring in the 1990s--albeit quietly Headlines have shouted the news of ever-larger bank mergers and acquisitions, with the result that the total number of commercial banks has declined from 12,700 to 8,900 over the past decade.

At the same time, about 600 new banks have been established in the past three years, according to the American Bankers Association.

Like Gooch's bank, most of these new banks are community banks, and that's good news for small-business owners.

"Small businesses really are the bread and butter of community banks because community banks themselves are small businesses," says Jennifer Bavisotto, director of communications for Independent Community Bankers of America, an association in Washington, D.C.

Bavisotto says the ICBA has found that larger banks are taking less interest in making small-business loans, whereas such loans are "what community banks thrive on."

When Gooch was still at York State Bank, he approved a loan for Dr. John D. Jevitz when no other banker would. A newly minted chiropractor, Jevitz was trying to start his own practice and needed $9,000 to get it off the ground. But he was saddled with student-loan debt. "I had absolutely zero collateral," he says, "except for my used car and a stereo."

To make ends meet, Jevitz held down seven part-time jobs, from taking X-rays for an orthopedic surgeon to serving as a high-school athletic trainer. Gooch was impressed with Jevitz's potential, intelligence, and work ethic.

When Gooch started Community Bank of Elmhurst, Jevitz, like many other York State customers, followed him to the new bank. "I couldn't ask for anyone to be more loyal to me," says Jevitz, whose Jevitz Chiropractic Clinic has grown to serve 3,400 patients.

Over the years, Jevitz has borrowed more than $110,000 from York State Bank and Community Bank of Elmhurst. He has paid it all back, proving that Gooch's faith in him was warranted.

The Local Angle

Definitions of a community bank may differ slightly, but banking experts generally agree that it's a bank dedicated to serving the needs of its home market. Usually--though not always--that means the bank is locally owned.

"All of our members are locally owned and locally operated banks, where decisions on loans and all other banking-product decisions are made locally," says Bavisotto of the ICBA, which has 5,500 members.

Kathleen M. Murphy, director of the Community Bankers Council of the American Bankers Association, also in Washington, says: "The overriding definition that we use is that a community bank is an institution that has accountability to other stakeholders in the community"

She emphasizes "stakeholders, not shareholders," explaining that this means entities such as small businesses, the school system, the medical community, and the government, all of which need the support of a bank and can use its services.

Murphy says it's in the best interest of community banks to make sure the community is strong. "Therefore, they are constantly looking for ways to provide economic development and economic growth and jobs in their communities. For this reason, they're reaching out, looking for new opportunities for existing businesses to grow or to form new businesses."

Generally, community banks are small, with less than $100 million in assets. The ICBA says 55 percent of its member banks serve rural communities.

Gooch says that a typical small-business customer at his bank will have a credit line of $25,000 to $100,000, will carry $20,000 in a checking account, and will have a money-market account and a couple of certificates of deposit.

At Sarasota Bank in Sarasota, Fla., the majority of business customers have annual revenues of $1 million or less, says the banks CEO, Christine L. Jennings. A typical business line of credit there is $50,000.

Filling The Gaps

A number of factors have given rise to the wave of community-bank start-ups. One is the void created by bank consolidations, which frequently lead to loan and other decisions being made by bank officials who are not local rather than by bank officials who know the applicants.