Bankers’ Hours: How to qualify to be a ‘community bank’
Community bank is a complimentary appellation, like “patriotism,” and about as well-defined and understood.
This segment of the financial industry is in the news because these institutions, according to conventional wisdom, are the banks that lend to small town small businesses and salt-of-the-earth American consumers. The collective vision that we all have of a community banker is Jimmy Stewart in “It’s a Wonderful Life.”
Being a community bank isn’t about asset size — there are $1 billion to $2 billion operations that have it right, and there are small town banks at $80 million that don’t have a clue.
A bank might think it makes the cut if it stages fun runs and craft shows, sponsors kids teams and funds a scholarship or two. Not even close; as they say in west Texas, “All hat and no cattle.”
Here are my criteria for an institution to get a community bank rating, which enables its employees to wear the coveted “CB” insignia on their lapels: a stylized house and dollar sign (I just made that last part up):
• A bank should exert itself to provide lending programs that relate to the unique nature of its market (or markets). An example of this might be a bank with mountain resort communities in its trade area. These enclaves sport a lot of nonconforming real estate, both residential and commercial, and a lending program that can accommodate these properties as collateral could be a winner.
• Every small town bank, or branch of a big one, should be either the top residential mortgage provider in town, or close to it. This can be done profitably, without risk, but many small town bankers don’t know how to do it. Sadly, they often don’t want to learn how.
• Community bankers should help all of their neighbors who walk through the front door looking for a loan. Surprisingly, most loans can be made by someone. If a borrower doesn’t meet banking underwriting guidelines, circa 2015, then the bank could help the customer find a loan elsewhere. Banks can actually make money doing this, sometimes quite a lot. But maybe it’s offered as a service that the home town lender provides for the benefit of all. Unfortunately, this assistance is rarely offered.
Most of today’s community bank CEOs and top managers were running their banks in August 2008. Their thinking is inevitably locked into premeltdown viewpoints. Postmeltdown thinking is vital to the survival of the home town banking concept.
Bankers know what they can’t do, after being rapped repeatedly on the knuckles by Mother Superior FDIC. They now need to focus on what they can, to enhance their own profitability, and the fortunes of their customers.
To Main Street and Elm Street, that bank on the corner of Main and Elm exists for just one reason: to bring money into the businesses and homes on Main and Elm.
If the good ol’ First National doesn’t do that, then forget about the scholarships and fun runs.
Pat Dalrymple is a western Colorado native and has spent almost 50 years in mortgage lending and banking in the Roaring Fork Valley. He’ll be happy to answer your questions or hear your comments. His e-mail is firstname.lastname@example.org.
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