These banks aren't looking for a bailout

First Community Bank in Naperville opened a few months ago in an unlikely spot: a storefront in a strip mall anchored by Starbucks and shadowed by Costco.

The newbie is backed by 18 suburban businessmen who put up roughly $200,000 each - despite a horrible economy and a pressing financial nightmare.

These bankers are finding that many people want to park their money in a secure institution that is averse to risky investments during such volatile times. In fact, the Naperville bank is now 50 percent ahead of its deposit projections, said First Community President J. Patrick Benton, a former Harris Bank executive.

"You can drive up and down 75th Street and see any number of banks here," Benton said. "But at this bank, you can say 'I'm a shareholder' and have an allegiance to the community. If you come in here, we know your name."

Personal service, local investors and a very conservative business strategy have kept independent banks alive, especially when many foundering larger banks and financial institutions are lining up for federal bailouts.

What's so sexy now about independent banks? Few if any mortgage loans and zero tolerance for high-risk investments.

Independent banks cater to the smaller saver and small- and mid-size businesses.

Illinois has 661 chartered banks and thrifts, including two that opened this year. Of the 661, about 575, or 87 percent, are community banks. Last year, Illinois had about 670 banks, including nine new charters, according to the Springfield-based Community Bankers Association of Illinois.

"The number of new banks opening has definitely slowed," said association President Bob Wingert.

Despite the volatile stock market and federal bailouts, true independent banks remain the steadfast heroes of the industry and friends to their communities, Wingert said.

"It's really a tough time to raise capital, but I know of several groups that are in the process of doing just that. Some are still trying to form new banks," Wingert said.

Chicago-area banks seeking to be chartered likely need to raise $6 million to $10 million, while downstate banks need around $5 million, he said.

"The more capital, the better. You need a lot of capital to hit the ground running," Wingert said.

Many of these independent banks are led by veteran bankers from bigger institutions. They may be seeking new challenges or have been disillusioned with their bigger banking careers after mergers. Those mergers could have changed the bank culture or just swallowed up the previous corporate identity, leaving bankers and customers feeling disengaged, some bankers said.

State charters come with an examination by the Federal Reserve, while federal charters have the Comptroller of the Currency do the examination. Otherwise, customers likely won't see much difference on the savings options or operations, Wingert said.

True community banks are independently owned, most likely by various local business leaders, and can feature the town's name in its shingle. The Peoples' Bank of Arlington Heights is an example of a true community bank because the shareholders are local. The Peoples' Bank, chartered in 1999, opened a branch on Arlington Heights Road last summer. And despite the tough economy, it quietly stays the course - and welcomes more customers. "These are interesting times," said bank President W. Franklin Appleby Jr.

While the Arlington Heights bank has operated independently for some years, the Naperville bank is in the so-called birthing process. It operates under a holding company that includes the First Community Bank of Joliet. Technically, the Naperville bank now operates as a branch of the Joliet bank and can use the FDIC insurance coverage and accept deposits because of that affiliation. Once its charter application has been accepted by federal authorities, possibly next year, the Naperville bank can issue a stock offering and spin off. That lets the new Naperville bank shed its Joliet branch role and become a full-fledged, independent community bank.

But consumers should look closely at the names of other community-type banks. They may include the town names but actually are divisions of holding companies owned by bigger institutions. For example, the Elk Grove Village Bank & Trust is owned by Advantage National Bank Group. Advantage is owned by Lake Forest-based Wintrust Financial Corp., which also has banks in Barrington, Crystal Lake, Wheaton and elsewhere. Wintrust posted a $2.4 million loss in the third quarter.

Some true community banks date back more than 100 years, mostly because they are very conservative, take few risks, offer basic savings and investment packages, and provide competitive or lower interest rates on loans.

Still, consumers need to look closely at any bank's balance sheets, what type of loans are made and their total assets, especially as our economy weakens, warns David Klein, senior vice president/financial consultant for RBC Wealth Management in Vernon Hills.

"If it's a young business, they likely don't have those nasty loans on the books that bigger institutions have," said Klein. "But do they have enough liquidity to make any loans? That's a question that's necessary in a weak economy."

A bad economy also could make lending harder for these smaller banks because they don't have the resources the larger institutions have, Klein said.

"But if they're FDIC-insured, there should be no problem going to these banks, as long as it's protected," Klein said.

Community banks actually can become more popular during volatile times because investors feel they can park their money there without much worry, Wingert said.

"They have tremendous ownership in the community," Wingert said. "That's the beauty of the independent institution. They've weathered many economic situations. Some have even gone through the Great Depression and some wars and are still active. Many survive and continue to prosper."

And the reason these independents prosper is the people who back them.

"Community bankers have a sense of dedication to the local people. They want to earn a decent living, sure. But they're not empire builders," Wingert said. "They breathe life into local communities."

Banks: Town names don't always mean community