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.

"A while back we looked at our margins and decided we were entitled to make a far and reasonable profit," said Jerry Christman, executive vice president of Dadeland Bank in Miami, which pays a meager 2.1% on its $79.6 million in interest bearing deposits, lower than any bank in Miami. "So we just decided to keep them low. We don't chase around the market, we're always well below it. And we haven't seen deposit runoff."

Mr. Christman chalked it up to a loyal base of professional customers who love the bank's service.

"Our customers recognize that service has a value," he said.

Sunniland Bank, Fort Lauderdale, has had paid the lowest rate on its interest bearing deposits in Florida for years, and in the first quarter its 1.85% average rate made it the lowest-paying independent community bank for core deposits in the country. It's net interest margin was 5.98%.

Mr. Christman said his customers' loyalty does not depend on deposit rates.

"I think you'll find that we ask below market for our loans, too," he said.

And Kevin B. McGuire, chief executive at Palm Desert (Calif.) National Bank, said there's more than meets the eye in the average 1.97% the bank paid on interest bearing deposits.

"This is a high market area with a lot of wealthy retirees," he said. "We provide a high level of service. We don't encourage the use of ATMS; we want them to come into the bank.

"It's worth their money to have that kind of service."

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