Magazine article American Banker

206 Banks Prove It: Paying High Rates Isn't Everything

Magazine article American Banker

206 Banks Prove It: Paying High Rates Isn't Everything

Article excerpt

In an age when financial services are becoming commoditized, community bank CEOs are thinking hard about deposit pricing. Many cite the inability to compete against mutual funds, discount brokerages, or megabanks with huge market influence as a competitive headache - or even a threat to the survival.

But some say the supposed danger is all bunk. A surprising number of community banks in urban, highly banked areas routinely pay their depositors next to nothing for the use of their money, according to an American Banker analysis of data from Sheshunoff Information Services.

And, yes, these banks have stable core deposit bases, huge margins and high returns on assets.

"It boils down to the fact that we've been in business since 1912 and we have a loyal customer base that we keep very happy," said Jerry Smith, a senior vice president at Citizens Commercial Trust and Savings Bank in Pasadena, which pays some of the lowest deposit rates in the Los Angeles area on its $76.6 million in interest-bearing deposits.

"We don't run after rates, we don't have jumbo CDs. I'd like to tell you we have some grand strategy, but we don't. I hate to sound boring, but it's pretty simple."

American Banker searched for community banks that pay less than 3% on their interest-bearing deposits and had net interest margins of more than 5% and returns on assets of more than 0.5%.

Surprisingly, there are 206 such animals, most of them in highly populated areas with sophisticated customer bases.

More than 50 of them are in California. …

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