Since 1978, Woodbury C. "Woodie" Titcomb has presided over Peoples Savings Bank, Worcester, Mass. - a region where banks have been hit hard by asset problems. But prudent lending has enabled his thrift to survive and prosper, says Mr. Titcomb. And the numbers bear him out.

Peoples, which has paid a dividend for 27 quarters in a row, returned $1.18 on every hundred dollars of assets in 1992. Nonperforming loans at the $932 million-asset bank represented just 1.04% of its total portfolio -- and reserves are 200% of nonperformers.

Mr. Titcomb, 68, also is president and CEO of Peoples parent, Peoples Bancorp of Worcester Inc. He recently shared his banking philosophy with American Banker reporter Phil Zahodiakin.

Q.: What is your definition of community banking?

TITCOMB: Safeguarding family, business and stockholder funds in good times and bad. That, and smoothing out the flow of cash, and lending for legitimate community needs within the framework of common sense, is what community banking is all about.

Q.: What do you mean by "smoothing out cash flow"?

TITCOMB: When businesses are cyclically short of cash we're there to help.

Q.: Are you there to help start the businesses?

TITCOMB: No. "Widow Jones" deposits shouldn't go into startups. Community banks aren't chartered to finance speculation. Friends and partners should start you up. That's what free enterprise is all about.

Q.: We keep hearing that New England banks aren't making commercial or small business loans. Is that true?

TITCOMB: We want to make those loans. We have a tremendous pool of money for lending, and we get a tremendous number of requests. But many of them aren't legitimate.

Q.: Meaning startup or capital loans?

TITCOMB: That's right. So, if you take out those, and bear in mind that consumer demand is slowing down, the demand for legitimate business loans isn't robust.

Q.: The city of Worcester has lost quite a few industrial jobs. Are you helping ease the hard times?

TITCOMB: Yes. We're keeping the depositors' money safe. We're very proud that we've lived up to the integrity we preach. We provided great service when everything else (in the region's banking industry) was falling apart.

Because of our strength, we've forged reliable alliances with many businesses. We've also stepped up to the plate and donated money for community endeavors -- even if I didn't personally support them.

Q.: Like what?

TITCOMB: A new convention center for Worcester. The state and the federal government will pay for much of it, but an awful lot of these government projects are just pork barrel deals. Charitable giving by a bank should be more broadly based, so we search for grassroots needs, and groups like United Way.

Q.: So, why did People pitch in for the convention center?

TITCOMB: I went to the board and told them the city needed a shot in the arm, and they agreed to help.

Q.: With 'Widow Jones" deposits?

TITCOMB: No. We took a capital gain -- $500,000 -- and we put it towards the convention center, and other projects, too.

Q.: Analysts say 30% of existing small banks will fall to consolidation by the end of the decade. Do you agree?

TITCOMB: I think it's probably true, but it should've been taking place over last 20 years. It has to take place because of problems we've seen. I don't think you find many bank managers exposed to the fundamental business they're in.

We have very fine people, but they haven't been trained conceptually -- where modeling and discussion make you sensitive to depositers.

Thrift managers don't have a sharp perspective on business cycles, but I was shocked by the excesses in the commercial banking industry -- in New England, in particular. It was very embarrassing. And it's amazing that the regulators let it happen.

Q.: What kind of training did you have?

TITCOMB: I had a 15-year apprenticeship at the Bank of Boston. I was a junior lending officer, then a vice president of lending. It was very valuable. It allowed my mind to function independently, and our lending discussions went over everything. It trains you to make loans that fit your balance sheets.

Q.: Will small banks lose significance market share as a result of interloping and interbranching by big banks?

TITCOMB: Of course, In Worcester, we have 200 mortgage lenders advertising services. They don't have branches, they don't make YMCA contributions, they don't pay taxes.

Government sponsored enterprises operate outside of the free enterprise system. When they created Fannie Mae, Ginnie Mae and Freddie Mac, the government said it would buy mortgages from anyone.

This puts every guy with a telephone into the business. We're the No.2 home mortgage lender in Worcester County, but our share of the total is tiny.

Q.: What steps should Bill Clinton take to help small banks?

TITCOMB: Biggest damage to small thrifts and community banks is the regulatory posture that big banks are too big to fail. We're required to have much stronger balance sheets, capital ratios, and stronger performance. Small banks would never be allowed to operate with the losses they tolerate at big banks.

Clinton has to level the playing field. Small banks aren't speculating in major takeovers or foreign countries. We also have to address FDIC premiums. We pay $1.6 million for insurance, and it's the most devastating burden we have. We need those funds to compete.

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