Small Is Beautiful - Black Enterprise

Small Is Beautiful

community-bankWhen it came time for Mell Monroe and his wife, Angela Higginbotham Monroe, to refinance their mortgage earlier this year, the couple shopped around for attractive rates. One bank offered a nice enough loan, but there was a catch. The bank wanted to charge the couple an extra fee to receive its lowest interest rate. Its representatives explained that they were assessing the fee because Monroe’s credit score had recently dropped 75 points because of a late payment.

Monroe wasn’t happy. He felt he wasn’t the credit risk his slightly blemished FICO score implied.

So the couple kept looking. In the end, the Monroes found a new lender in Illinois Service Federal Savings and Loan Association (No. 16 on the B.E. Banks list with $143.8 million in assets), a small community bank headquartered just five blocks from their home in Chicago’s Bronzeville neighborhood.

One of the bank’s executives knew Monroe from their work together as part of a community group. Illinois Service offered the Monroes a 30-year, fixed-rate mortgage at 5.4% with no extra fees. Since receiving their loan, the Monroes moved their savings and checking accounts to the bank. “I feel foolish that I didn’t do this a long time ago,” says Monroe. “This bank has outstanding service and a real sense of kinship with the neighborhood. More importantly, they trust that we’re good folks and will pay our loans back.”

The banking industry’s problems are well known–perhaps too much so. Fortunately, consumers have choices that go beyond the big, national financial institutions. There are nearly 8,000 community banks in the U.S. and more than 50,000 branch locations; many of them are growing, innovating, and challenging their larger competitors for customers. This new movement among smaller banks comes after more than a decade of losing out to national, name-brand banking firms.

In 1994, for instance, community banks held the majority of U.S. deposits–70%. Today, only 30% of U.S. deposits are kept in community institutions. Experts believe consumers flocked to the larger banks because they offered more active products such as online banking, free ATM use, and free checking–at a time when community banks were hesitant to modernize.

Community banks see now as a perfect time to make their move. Many are offering the same innovative products as the big boys, without any of the worries. “Consumers are definitely waking up. And they’re realizing that the TARP-ridden mega-banks may not be the most beneficial banking relationship for them over the long term,” notes Gabe Krajicek, CEO of BancVue, a consultancy that helps community banks modernize. BancVue provides software, marketing, and other services for more than 550 community banks.

“Consumers look at the news. They see the meltdowns that have taken place because of the large financial institutions and feel a real lack of confidence and trust,” says Karen Tyson, spokeswoman for the Independent Community Bankers of America, or ICBA, a trade association for nearly 5,000 community banks. “People are looking to work with a bank they trust, one they know is looking out for their best interests and the best interests of their communities. They find that with a community bank.”

That’s not just talk. In the first three months of 2009, ICBA member banks tripled their mortgage loan volume compared to the same period in 2008. In a press release trumpeting the jump, Dave Petro, president and CEO of ICBA’s mortgage arm, called the increase “a dramatic indication that community bankers are regaining lost market shares in the residential mortgage arena. It also demonstrates that despite the challenging economic environment, our nation’s [community] banks are commonsense lenders that continue to lend to their customers in cities and towns throughout America.”