1. ©2012 FIS and/or its subsidiaries. All Rights Reserved.
In my September 2011 article, I talked about how community banks are at a disadvantage in terms of
customer relationship expansion mostly because the community bank customer base has less income
and future earnings potential. This month’s article continues that analysis and examines the influence
of customer demographics and geographic location on both the composition and the financial
behaviors of community bank customers. All analysis cited in this article was generated from primary
research of 3,345 consumers conducted by FIS Enterprise Strategy in August 2011.
The affluence gap between the community bank customer and the average bank customer results in
community bank customers holding lower-than-average investable assets and loans overall, with
correspondingly less opportunity. This means that the community bank has to capture greater shares
of available financial resources to compensate for the thinness of their customers’ wallets. Community
banks do a good job of getting their fair share of available deposits, but they still fall short of the
average deposit amount because their customers have fewer assets. On the loan side, community
banks get less than their fair share of loans and fall even shorter of the average loan amount.
While geography has a significant influence on the composition of community bank customers, it
would be wrong to assume that community bank customers are purely “small town folks.” Overall,
community bank customers are more likely to live in a large city than a small town. Among all
consumers who identify a community bank as their primary DDA provider:
Overcoming the Demographic
Disadvantages of Community Banking
By Paul McAdam
Senior Vice President, Research & Thought Leadership
January 2012
Research Note

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 29% live in rural areas or small towns (defined as fewer than 50,000 residents);
 34% are in small metro areas (between 50,000 and 500,000 residents);
 37% live in mid-sized to large metro areas (more than 500,000 residents).
However, less than 10 percent of U.S. consumers live in rural/small towns while nearly two-thirds live
in towns with more than 500,000 residents, so there are striking differences in the concentration of
community bank customers between each of these markets (see Figure 1). Within rural/small towns,
consumers are three times more likely to identify a community bank as their primary DDA provider
(index = 319). In small metro areas, consumers are about one-third more likely to bank with a
community bank (index = 136), while in mid-sized/large metro areas consumers are about half as likely
to identify a community bank as their primary DDA provider (index = 56). Of course, demographic and
competitive dynamics significantly influence these concentrations as rural and smaller markets tend to
have older residents on average and a lower concentration of large national banks. The opposite is
true in big cities.
319*
136
56
0
50
100
150
200
250
300
350
Rural /
small town
Small metro Mid-size /
large metro
Concentration of community bank customers by market
(average = 100)
Figure 1: Community bank customers are significantly more concentrated within
rural and smaller towns
Source: FIS Enterprise Strategy, August 2011; n = 3,345
National
Average = 100
* Read as: Within rural and small towns consumers are 3 times more likely to bank with a community bank (index = 319).

3. ©2012 FIS and/or its subsidiaries. All Rights Reserved.
Community bank customers, as a whole, have a number of demographic characteristics that put
community banks at a competitive disadvantage in retail banking long term. Community bank
customers are:
1) Older;
2) Less likely to be employed (i.e., a higher portion are retired);
3) Have less education.
As a result, they have less household income despite the fact they are more likely to be married,
thereby providing two potential sources of income. Nearly two-thirds (65%) of community bank
customers are married regardless of where they live — far more than the national average.
So what happens when we examine community bank customers who live in rural and small towns
versus those who live in big cities? Most key demographics that drive income and future earnings
potential don’t shift:
 Community bank customers are just as likely to be retired or unemployed regardless of where
they live.
 They also are just as likely to be older, which can be a positive for investment and deposit-
related revenue but not for loans.
 Community bank customers are just as likely to have less education regardless of where they
live. Even in big cities (where the population as a whole tends to have a higher level of
education), the portion of community bank customers with only high school or less education is
above the norm (by 24%) while those with a college degree or higher is below the norm (by
8%).
A troubling pattern emerges when we examine the average incomes of community bank customers
who live in small towns versus those who live in big cities (see Figure 2). As one would anticipate, the
average annual household income of banking consumers’ increases with the size of the metro area.
But unfortunately for community banks, the incomes of their customers fall significantly short in larger
markets.
 In rural and small towns, the average incomes of community bank customers and all other bank
customers are statistically equivalent.

4. ©2012 FIS and/or its subsidiaries. All Rights Reserved.
 In small metro areas, community bank customers have average annual income 12% lower than
that of all other banking customers.
 In mid-sized and large metro areas, community bank customers have average annual income
13% lower than that of all other banking customers.
The pattern of community bank customers having lower income and earnings potential results in them
owning investable asset balances (deposits and non-IRA investments) 12% lower than the national
norm. As demonstrated in Figure 3, consumers who hold their primary DDA relationship with a
community bank have lower incidence of deposit and investment product ownership with their
primary bank in all products but CDs.
Figure 2: The average income of community bank customers falls short in larger
markets
$48,003* $47,400
$57,353
$47,846*
$54,110
$65,782
Rural /
Small town
Small metro Mid-sized /
large metro
Average annual income of DDA households by market
Consumers w/ primary DDA at a community bank Consumers w/ primary DDA at another type of FI
Source: FIS Enterprise Strategy, August 2011; n = 3,345
* Read as: Within rural and small towns, consumers who maintain their primary DDA relationship with a community bank reported average
annual household income of $48,003. Within this same market, consumers who maintain their primary DDA relationship with all other types
of banking providers reported income of $47,846.

5. ©2012 FIS and/or its subsidiaries. All Rights Reserved.
Despite these disadvantages, community banks do an admirable job of capturing their customers’
available deposit balances. For some deposit products, community bank customers — especially those
in rural areas and small towns — show a higher-than-average propensity to consolidate their assets
with their primary DDA provider. And on an overall basis, community banks capture 74% of the
deposit balances available from their primary DDA customers, compared to a norm of 70% for all other
financial institutions.
But clearly there’s an opportunity for community banks to do a better job of cross-selling to existing
customers. “Investment-oriented” services (money market and non-IRA investment accounts) are
specific opportunities (see Figure 3). Community banks capture money market relationships with only
44% of primary DDA customers versus a cross-sell rate of 60% achieved by all other financial
institutions. Similarly, community banks capture a non-IRA investment relationship with 11% of
primary DDA customers compared to 21% for all other financial institutions.
On the loan side of the ledger, the combination of a customer base that is older with lower earnings
potential contributes to community banks capturing total loan balances from their primary DDA
customers that are 10% below the national norm. As demonstrated in Figure 3, the percentages of
Figure 3: Community banks are missing out on investment and consumer lending
opportunities
Source: FIS Enterprise Strategy, August 2011; n = 3,345
* Read as: Among consumers who maintain their primary DDA relationship with a community bank , 84% reported owning a savings account
with the primary DDA provider. Among consumers who maintain their primary DDA relationship with any other type of banking providers, 86%
reported owning a savings account with the provider.
84%*
44%
67%
11%
24%
11%
24%
40%
21%
86%*
60% 60%
21%
25%
47%
30%
55%
23%
Savings Money
Market
CD Non-IRA
invest.
IRA invest. Credit card
(revolving)
First
mortgage
Home
equity loan
Auto loan
Percent of consumers owning accounts with their primary DDA provider
(among consumers who own each type of account)
Consumers w/ primary DDA at a community bank
Consumers w/ primary DDA at another type of FI

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community bank customers holding first mortgages and auto loans with their primary DDA provider is
roughly the same as that of other financial institutions. But the percentage of community bank
customers with primary DDA-provider credit cards and home equity loans is significantly below the
penetration achieved by other financial institutions. While closing the cross-sell gap in home equity
lending probably isn’t feasible or advisable in the near-term given the real estate market crash,
community banks are missing opportunities with their current customer base in the form of revolving
credit card programs.
Many community banks have exited the consumer credit card-issuing business over the past couple
decades, but some are reconsidering it in the advent of Durbin debit interchange regulation.
Regardless of an institution’s legacy view of credit cards, our research suggests that community banks
should look beyond the economics of credit cards as a standalone offering and consider the value that
a “primary” credit card relationship can bring to overall customer relationship profitability (see Figure
4). Consumers who designate their community bank as the “primary” DDA and credit card provider
generate profitability, deposit and loan balances that are 3.5 – 4 times higher than customers who
maintain their primary DDA with a community bank but hold their primary credit card relationship with
another financial institution.
Community bank customers who…
Have primary DDA
and credit card with
the community
bank
Have primary DDA
with the
community bank
but primary credit
card with another
provider
Number of deposit and loan products held with primary
DDA provider
3.2 1.8
Annual customer profitability to primary DDA provider $1,115 $267
Deposits balances held with primary DDA provider $32,849 $8,056
Deposit wallet share captured by primary DDA provider 92% 79%
Loan balances held with primary DDA provider $40,324 $11,269
Loan wallet share captured by primary DDA provider 57% 12%
Figure 4: Obtaining status as the primary DDA and credit card provider yields a
tremendous profitability advantage
Source: FIS Enterprise Strategy, August 2011; n = 274
* Read as: Consumers who maintain their primary DDA and credit card relationship with a community bank hold 3.2 products with the
provider. Consumers who maintain their primary DDA relationship with a community bank but their primary credit card relationship with
another provider hold 1.8 products with the primary DDA provider.

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In summary, community banks do have a disadvantage inherent in the demographics of their customer
bases. Community banks in rural areas and small towns are holding their own and competing well,
however. They capture strong retail consumer market share and those consumers are more likely to
consolidate with the community bank. Stagnant or declining underlying market growth is a key
problem faced by many of these banks. Community banks that compete in small-to-large metro
markets also have disproportionately older and less educated customers and they face the added
challenge of customer bases with household incomes 12 to 13 percent below market norms.
Regardless of the size of market served, the research suggests that community banks should strongly
consider strategies to:
1. Attract new and younger DDA customers with desirable characteristics;
2. Cross-sell to deepen relationships with existing customers — particularly in investment-
oriented products and credit card programs.
To be fair, there are certainly a number of community banks in both rural and urban markets that
outperform their larger bank brethren in cross-sales and other relationship expansion metrics. It’s also
the case that some community banks don’t place a primary strategic emphasis on retail banking and
focus instead on middle-market and small business — and also compete very effectively with larger
banks.
But taken as a whole, our research reveals an urgent strategic priority for the community banking
industry. Given the current anti-big-bank climate, the timing for such initiatives is right.
I will continue to explore this topic of community bank competitiveness in future newsletter editions.
In the meantime, feel free to contact me at paul.mcadam@fisglobal.com with your questions or
comments.