Bankers’ Hours column: A primer on community banks
You’ve heard a lot about “Community Banks” in this column and occasionally in business news stories.
Like most generic appellations, the term can have an amorphous definition and is often mis-applied and misunderstood. To get an idea of what’s in a banker’s mind when using the term, dial up “It’s a Wonderful Life.” George Bailey, as played by Jimmy Stewart, is the quintessential community banker.
Of course, the film portrays a stereotype, but stereotypes reflect reality. A small town banker generally had a better handle on individuals in the community than the town’s pastors and priests. Banking folklore abounds in stories about the banker who would lend money based on character, not wealth, and ultimately was proven right.
Small banks are disappearing. It’s not so much that they’re struggling financially; in fact, the ones that are still in business are doing quite well, even when faced with the overwhelming competitive resources of the mega-institutions like Chase and Bank of America. In the wake of the 2008 financial crisis, it was small and mid-sized operations that comprised the majority of bank closures, because, well, it was simpler to shut down a small business than a big one.
Stockholders of community banks are opting to take the money and sell out. Many of the execs in these banks have been at it for a while and are ready for the pasture.
But others who are staying in the game think they’ve got a place at the table, that they can rake in some chips, and they’re probably right. For one thing, they certainly know who the enemy is: Just take a look around, anywhere you go. When you see a bank, it’s probably a branch of a nationwide network, or at least a location of a very big regional entity. The challenge to a small-time, small-town banker is how to stand toe to toe with these behemoths.
The Independent Community Bankers of America (ICBA) is the trade association for community banks. At their recent national convention in Nashville, they focused on battling the big guys. One of the key issues was electronic banking, in which the Chases and others have invested billions. The consensus was that small institutions must offer true offsite banking options as sophisticated as B of A. At the same time, there was general agreement that hometown bankers should continue to serve and relate to their customers as they always have. In other words, don’t forget George Bailey.
There’s no doubt that little banks must beef up the digital side so that customers can do business from a smartphone. But just spending time in the weight room getting bigger biceps doesn’t necessarily win ball games when you’re nose to nose with the other guy across the scrimmage line. You need an edge beyond muscle; do something better than the top 10 financial teams you face.
Community bankers do have an edge; they just have to look back at George Bailey.
He ran the S&L in Bedford Falls; he was the bank. When you watch the film, you’re sure that he was on a first-name basis with every one of his customers.
The advantage is accessibility and response. Say that the bank is Second National in Downriver, Montana, maybe $200 million in assets. A prospective borrower can phone the CEO to start the process in motion. Try doing that with Jamie Dimon at Chase.
A small bank probably isn’t any more likely to approve your loan than Bank of America, but, if time is money, Second National is way in front of B of A. All a credit officer has to do in Downriver is walk across the hall to the president’s office to get guidance. In Downriver, you may not always like the answer you want from your banker, but you’ll hear it more quickly.
In a community bank, the CEO can be the silver bullet that occasionally stops Wells Fargo in its tracks. The president in a small institution is the point in loan production, and a key element of any marketing campaign. Ease of access is part of the business model in the first instance and a marketing mantra in the second.
I’ve hung around the bus station of banking for quite a while, so I’ve had a chance to watch some bankers in action. One president’s policy was to never leave a phone call un-returned at the end of the day. If he didn’t get back to the caller by 5 p.m., he’d call in the evening. If he knew the caller, he might say something like, “Hey, you eating dinner?” If he didn’t, it was a more reserved, “Hope I didn’t catch you at a bad time, but I want to apologize for not returning your call today.” That apology was a game winner. Maybe he didn’t return every call, but I know he had a pretty good batting average.
Another George Bailey type abhorred asking for a caller’s identity, as in, “May I tell him who’s calling?” His opinion: “We spend a lot of money urging people to do business with us. Why grill them?”
I have a good friend, younger and brighter than I, who is the CEO of a growing and profitable community bank. He politely tells me that a CEO today has a lot more to deal with than I did way back in the last century, let alone in George’s time. And he’s absolutely right, of course.
Still, execs of hometown financial institutions need to play their ace, that a big bank can never draw from the deck:
Delegate the work, but not the contact.
Pat Dalrymple is a western Colorado native and has spent more than 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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Between putting the winter toys away and anticipating upcoming COVID-19 freedoms, now is a great time to freshen up your finances.