Philadelphia Saving Fund Society v. Banking Board

Opinion by Me. Justice Jones, This case is here on certiorari to the Banking Board of Pennsylvania for the review of an order of the — 256 — Board. The appellees have moved to quash the appeal. The motion must be denied. This court has jurisdiction in the premises; and the certiorari is broad. So much was decided in Delaware County national Bank v. Campbell, 378 Pa. 311, 106 A. 2d 416. Contrary to the appellees’ contention, the scope of the review on certiorari is not material to a question of jurisdiction. Nor is the breadth of the review retracted, as the appellees further contend, by reason of the fact that the Banking Board disapproved, rather than approved, the appellant’s application for an amendment of its charter. The provision in the Banking Code, to which the appellees point, relates to a disapproval by the Department of Banking and not by the Banking Board. So far as the finality of an order of the Banking Board is concerned, the Banking Code makes no distinction between an approval and a disapproval by the Board. And appellate review is not expressly denied. The questions, therefore, on certiorari to an order of the Banking Board are whether the evidence supports the Board’s findings and whether the findings justify the Board’s conclusions: see Delaware County national Bank v. Campbell, supra. The present appellant, Philadelphia Saving Fund Society, is a mutual savings bank without capital stock, incorporated under the laws of Pennsylvania and having its principal place of business in Philadelphia. On October 21, 1954, the Society applied to the Department of State for an amendment of its charter so as to permit it to establish a branch in Ardmore, Montgomery County, — a county contiguous to Philadelphia County. This was in accordance with Section 204D of the Banking Code of May 15, 1933, P. L. 624, as amended, 7 PS §819-204B, which provides that “Any institution may, ... in the manner provided in this act for an amendment to its articles, . . . establish a — 257 — branch ... in any place within any county contiguous to the county in which its principal place of business is located, if the city, borough or other community in which such branch ... is to be established is without adequate banking facilities . . . .” The Department of State endorsed its approval on the proposed amendment and transmitted the articles to the Department of Banking. That Department, as required by law, caused an investigation to be made of the existing banking facilities in the Ardmore community and, on the basis of such investigation, approved the proposed amendment on December 2, 1954. The Department of Banking then forwarded the amendment, as so approved, (together with a copy of the Department’s report of its investigation) to the Banking Board for review: see Sec. 204F (2), as amended, of the Banking Code, cite, supra. The Banking Board held a hearing in the matter on December 16,1954. The hearing was begun at 10:15 A.M. and was concluded at 11:50 A.M., consuming, all told, one hour and thirty-five minutes; and, the very same day, the Banking Board handed down an adjudication and order disapproving the articles of amendment. Specifically, the order directed that the articles be returned to the Department of Banking, that that Department disapprove them, that it endorse its disapproval thereon and that it then return them to the Department of State. That was done. Thereafter, the Secretary of the Commonwealth returned the articles to the Philadelphia Saving Fund Society with a statement that they had been disapproved. The Society then sued out the writ of certiorari which brought the matter to this court. Protests by a number of banking institutions against the establishment of the proposed branch had been lodged with the Department of Banking. Some — 258 — of the protesting institutions were as far distant from Ardmore as Ambler, Souderton and Hatboro in northern Montgomery County; and a protest was even filed by the Bucks County Bankers Association. There were, in all, eleven such protests, but most of them were not seriously pressed. When the names of the various protestants were called by the Chairman of the Banking Board at the hearing before that body, there was no response whatsoever from seven of them. In the case of two others, their respective representatives answered that they were not filing any brief or making any statement in the case other than the protest already lodged. That left remaining of the protestants only the Bryn Mawr Trust Company (then in the process of absorbing, by merger, the Bryn Mawr National Bank, also a protestant) and the National Bank of Narberth, for which institutions, as well as for the Montgomery County Bankers Association, a joint brief in support of the Board’s action has been filed in this court under our Buie 46. In ascertaining whether the banking facilities in “the city, borough or other community”, in which it is proposed to establish a branch, are adequate, it is obviously essential first to determine the extent of the area involved. As it so happens, Ardmore is neither a municipality nor a political subdivision but a geographical designation, partly in Lower Merion Township, Montgomery County, and partly in Haverford Township, Delaware. County,' embracing a highly developed residential area and' an extensive business "district along the Lincoln Highway (which bisects the locality in an east-west direction) and in the Ardmore Shopping Center, known as Suburban Square, a block or so to the north of the Lincoln Highway. The designated location of the Philadelphia Saving Fund Society’s proposed branch is in the Suburban Square. — 259 — The Banking Board found that both the proponents and opponents of the proposed branch recognized that the Ardmore “community” served by existing banking facilities was “the territory within a radius of 2% miles from the site of the proposed branch office.” In that area there are three commercial banks, viz., the two present protestants, the Bryn Mawr Trust Company (with which the Bryn Mawr National Bank is merged), which is two miles distant from the proposed branch, and the National Bank of Narberth, which is likewise two miles distant but has a lately opened branch in Wynnewood which is one mile from the proposed Saving Society branch; the third commercial bank is a branch of The Pennsylvania Company for Banking and Trusts located on the Lincoln Highway in the Ardmore business district one-fifth of a mile from the site of the proposed Saving Society branch. There is also on the Lincoln Highway, not far from The Pennsylvania Company branch, the Lower Merion Federal Savings and Loan Association. It is noteworthy that The Pennsylvania Company, which is by far the largest commercial bank in the locality, has not objected, and makes no objection, to the establishment of a branch of the Philadelphia Saving Fund Society in Ardmore. The Banking Board did not find, however, that the banking facilities in the Ardmore community were adequate. All that it found with respect to the services performed by the existing banks was “That the aforesaid three banking institutions [Bryn Mawr Trust, Bryn Mawr National and Narberth National] and the branch office of The Pennsylvania Company for Banking and Trusts offer complete and well-rounded banking facilities, including savings account facilities, safe deposit boxes and mortgage loans . . . .” So much may be readily conceded, but that is still a — 260 — far cry from a finding that the available banking facilities are adequate to the needs and demands of “the community”. Nor was there any evidence before the Board from which a finding of adequacy could have been made. A numerical proportion or relativity cannot be stated on the basis of one factor alone. And, all that was shown by the protesting banks was the amount of their resources, the extent of the banking business they did and the population of the Ardmore “community”. They did not show that the banking services they afforded reasonably supplied the requirements of the community. Counsel for the Bryn Mawr Trust Company, by showing a gratifying increase in the number of the bank’s depositors and its total resources over the preceding ten years, forthwith assumed the adequacy of that bank’s facilities ten years before and then deduced the obvious non sequitur “that if facilities were adequate 10 years ago, . . . they are more than adequate today.” The Banking Board’s conclusion of law that “the community of Ardmore now has adequate banking facilities and it does not require additional banking facilities at the present time” was a bald and capricious conclusion without a single finding of fact to support it. On the question of adequacy, the character of the facilities to be offered by the proposed branch bank is, of course, significant. The wording of the statute so imports. In the present instance, the protesting banks are commercial institutions while the proposed branch would be a mutual savings bank. The distinction between the two types of banks is well known. A commercial bank is a business institution which seeks to sell its services at a profit. The services which such a bank renders promote the flow of commerce by affording a more facile transfer of money credits from lender to borrowers. Actually, a commercial bank — 261 — functions as a dealer in the commodity of currency for private gainful purposes, and the principal aim of such a bank is to obtain for its owners (i.e., its stockholders) a fair return on their invested capital. On the other hand, the primary purpose of a mutual savings bank is to encourage thrift. It does not engage in the selling of commercial services and, in reality, is nothing more than a cooperative investment association made up for the most part of subscribers who have relatively small financial means. The function of such a bank is to receive small but frequent deposits from a large number of individuals. The aggregate of these deposits is then carefully invested, from time to time, in home mortgages, stocks and bonds, and the resultant income (after proper legal reserves and deductions for operating expenses) is distributed proportionately among the various depositors by way of a dividend. There are no corporate owners of a mutual savings bank to share in its income. The primary aim of a mutual savings bank is a maximum return to depositors with the highest possible degree of financial safety. And, so it is that the savings bank offers the small depositor a sound income-producing investment for his modest means and at the same time affords him a convenient opportunity of home financing. The distinction between a mutual savings bank and a commercial bank for profit has long been judicially recognized. In Mercantile Bank v. New York, 121 U. S. 138, 161, the question was whether a New York statute which exempted savings banks from a State tax to which national banks were subject was unenforceable by reason of a federal statute which prohibited more favorable taxation of financial institutions competing with national banks. The Supreme Court of the United States sustained the State statute, as applicable to national banks, saying, — “No one can suppose for a — 262 — moment that savings banks come into any possible competition with national banks of the United States. They are what their name indicates, banks of deposit-for the accumulation of small savings belonging to the industrious and thrifty. To promote their growth and progress is the obvious interest and manifest policy of the state. Their mutiplication cannot in any sense injuriously affect any legitimate enterprise in the community.” Again, in Bulakowski v. Philadelphia Saving Fund Society, 270 Pa. 538, 540, 113 A. 553, the fiscal concept was aptly expressed for this court in the following language: “A savings bank is an institution organized to promote prosperity of persons of small means and limited opportunities, wherein earnings may be gained on aggregate small deposits, which earnings, after deducting necessary expenses, and a reserve for depositors’ security, are divided among the depositors. There is no capital stock, nor are there stockholders in such institutions, and it is not a bank in the commercial sense of that word” (Emphasis supplied). Possible competition from the proposed branch appears to be the gravamen of the protesting banks’ opposition to its establishment. Even if competition from such source should threaten, that would not go to prove that the existing banking facilities are adequate. But, beyond that, there are only three similar or even partially similar banking services which the local commercial banks and the Saving Fund Society perform, namely, loans on first mortgages on homes, interest-bearing time deposits in the one case and savings accounts in the other and the renting of safe deposit boxes. As already noted, the Saving Fund Society does not offer any commercial banking facilities whatsoever; it does not carry checking accounts; possesses no fiduciary powers; does not solicit and would — 263 — not knowingly accept any commercial business; does not make commercial loans of any kind including loans on installment purchases; and does not make personal loans. So far as mortgage loans on homes are concerned, the Saving Fund Society already owns in the Ardmore community 949 of such mortgages with an aggregate face value of roundly $8,000,000. At the hearing before the Banking Board, a representative of the Bryn Mawr Trust Company testified that his institution had “serviced” over the preceding ten years approximately $55,000,000 of mortgages. But, that argues inadequacy rather than adequacy of the Trust Company’s own mortgage-loaning facilities when it is recognized that “mortgages serviced”, as defined by the representative, “means that these were mortgages that we placed through our facilities, through our correspondents, insurance companies and whatnot”, in other words, brokered them to distant mortgages or assignees. Of course, the Trust Company could not loan on mortgages to such extent. Its investment in mortgages is limited by law to twenty-five per cent of its capital and surplus, which amounted to $1,350,000 at the time of the hearing or to fifty per cent of its time deposits, then amounting to $5,-248,000 (see Section 1012C of the Banking Code, supra). The interest-bearing time deposits in a commercial bank are far different from the savings accounts of depositors in a mutual savings bank. The commercial bank pays interest on time deposits at a fixed rate and any excess of earnings on such deposits belongs to the stockholders of the bank. The depositor’s right to interest is contractually derived and the relationship between the bank and the time depositor is that of a debtor and creditor, whereas in the case of a savings account in a mutual savings bank the increment re — 264 — ceived by the depositor is by way of a dividend upon a distribution of tbe net earnings of the savings bank after expenses and reserves, and the relationship between the bank and the depositor is that of fiduciary and beneficiary. Moreover, an account may be opened in the Philadelphia Saving Fund Society with a deposit of as little as one cent and, when the account reaches one dollar, it shares in the periodic distribution of the bank’s earnings. The present record evidences that many thrifty persons of small means prefer the advantages offered by a mutual savings bank over those of a commercial bank which is organized and operated for profit. The Philadelphia Saving Fund Society, after operating for years as a savings bank and thrift promoter, has more than 760,000 individual deposit accounts with an average balance in such accounts of less than $950. And, of these accounts, 225,000 (with an average balance of $28 each) are the savings accounts of school children. Over 6,000 of the bank’s accounts are of residents of the Ardmore community for a total deposit in excess of $13,000,000, — more, in fact, in total amount of accounts and aggregate of deposits than the interest-bearing accounts of any local bank. While the convenience of customers is not determinative of inadequacy of local banking facilities, it has some bearing when the adequacy of existing banking facilities is appraised with respect to the character of banking service which the proposed branch will afford. Less than four per cent of the deposits in the Philadelphia Saving Fund Society and withdrawals therefrom are made by mail. In other words, ninety-six per cent are made by depositors calling in person at the bank. The significance of this fact becomes apparent when it is realized that there are 6,000 depositors of the Saving Fund Society and approximately 1,000 mortgagors to the Society in the Ardmore community. — 265 — The difference between a commercial bank and a savings bank is so important that, in order to preclude prospective depositors from being misled into believing that a commercial bank offers true savings account facilities, a statute of this State (Section 201 of the Banking Code) expressly forbids a commercial bank from using the word “savings” in its corporate name. Other States have acted similarly. For instance, New York has a statute which prohibits any banking institution, other than a savings bank or a savings and loan association, from using the word “saving” or “savings” in its banking or financial business or in an advertisement relating thereto. The validity of the statute was upheld by the New York Court of Appeals in People v. Franklin National Bank, 305 N. Y. 453, 460, as being an expression of “an old, wise policy of protecting our citizens against being fooled.” The reversal of the decision by the Supreme Court (347 U. S. 373) did not impugn the validity of the statute but merely relieved national banks from its operation because of a conflict with a federal statute. In construing a somewhat similar Act, the Supreme Court of New Hampshire said that “the statute reveals its controlling purpose to be the prevention of deception, fraud, and false representations by persons and corporations in assuming to invest funds deposited with or entrusted to them, under contracts purporting to give the depositors the same advantages and protection afforded by savings banks . . .”: State v. People’s National Bank, 75 N. H. 27, 31, 70 A. 542. The objecting banks’ principal reason for opposing the establishment of a branch savings bank in Ardmore appears to be their expressed fear that such a branch would “drain off many of our depositors”, meaning, of course, time depositors since the savings bank accepts no checking accounts. No special knowledge of bank — 266 — ing is needed for one to realize that time deposits are a very important part of a bank’s resources. But, the protestants’ apprehension rests upon speculation alone and stems from the fact that the rate of interest paid by the local commercial banks on their time deposits is 1% to V/2% while the current rate of dividend paid by the Philadelphia Saving Fund Society on its savings accounts is 2%%. In the light of the present record, that proves absolutely nothing in the way of possibly harmful competition from a branch savings bank. The Federal Savings and Loan Association (already located in the business district of Ardmore) pays 3% on savings accounts, i.e., twice as much as the local commercial banks. Yet, in the face of that fact, during the ten years preceding the year of the hearing before the Banking Board the interest-bearing time deposits in the' Bryn Mawr Trust Company increased in number from 3,397 to 5,829, and in total amount from $2,118,000 to $5,248,000. And, during the same period, the time deposits in the National Bank of Narberth increased by $1,000,000. What the proportion of increase was, does not appear from the meagre figures offered by that institution which elected to rest the case on the showing made by the Bryn Mawr Trust Company. The possibility of competition in the renting of safe deposit boxes is so negligible as not to justify detailed comparison. In any event, freedom from competition of a proposed branch bank does not spell adequacy in existing banking facilities. The banking laws of the State are not designed to confer monopolies upon fortunately located banking institutions. As'Mr. Justice Bell recognized, in speaking for this court in Delaware County national Bank v. Campbell, supra, p. 325, — “The legislature . . . did not exclude or intend to exclude competí — 267 — tion between banks; it intended, inter alia, to exclude such competition as would likely weaken or destroy some banks in an overbanked community and thus weaken or injure the entire banking system, to the detriment of depositors, creditors, stockholders and the public alike.” On the basis of the record in this case, no such harmful competition is to be anticipated from the establishment of a branch savings bank in Ardmore. Of Pennsylvania’s seven mutual savings banks the four located in Philadelphia have for years lived side by side with commercial banks and all have prospered without detriment to either type of banking. In the light of the evidence adduced at the hearing before the Banking Board, its disapproval of the proposed amendment of the applicant’s charter was arbitrary and unwarranted and must, therefore, be reversed. The order of the Banking Board of Pennsylvania disapproving the application of the Philadelphia Saving Fund Society for an amendment of its articles of incorporation so as to permit it to establish a branch in Ardmore is reversed and the record is remanded with directions that the Banking Board take such steps as may be necessary to evidence its approval of the proposed amendment; each party to bear its own costs.