I was recently invited to join a retreat of the directors of a $300 million-asset mutual savings bank that has been in business since just after the Civil War.
The bank has always performed well - surviving the panics of 1893 and 1907 as well as the Great Depression - and has top Community Reinvestment Act ratings from the examiners for compliance, safety, and soundness. Its deposit and fee-income growth has been strong since it initiated a free-checking program in October 2001.
The directors do not want the bank to go public; they would rather stress local service and community strength than please Wall Street.
Yet they know that growth will be slow, since the bank is in a shrinking area. Businesses are closing and young people are leaving for college and not coming back, so there is little justification to expand by building branches.
Directors proposed buying a rival savings bank that had done a first-step conversion, and their plan was to convert it back to mutual status. But the offer was turned down, because the other bank's board wanted it to stay independent.
The CEO is philosophical about this setback. "We would have been able to generate great economies of scale," he said. "But the merging of two separate cultures would have been difficult." His first objective is to maintain his bank's strength in its communities.
The retreat was organized to discuss what had to be done to keep the bank healthy and the staff's morale high. Many of the ideas we discussed would be applicable to other community banks, whether mutual- or stockholder-owned.
First we agreed that the bank must make sure its employees are adequately compensated and trained. To accomplish this, it has decided that every new staff member must take the American Institute for Banking's Principles of Banking course.
Beyond that, the board agreed that the bank has a reputation among local public officials as a major positive force in the towns it serves and that it should never lose sight of this.
To further this goal it was agreed that the bank should devote even more of its financial and human resources to nonprofit and other organizations. This would help the communities and give employees who become involved an added sense of challenge and achievement. We discussed "Up Is Not the Only Way," by Judy Barthwick, which talks about motivating employees who know they can climb only so far up the corporate ladder.
We also talked about implementing some community programs. For example, the bank could sponsor lectures featuring local teachers, start an internship program, or make employees available to speak on financial planning or wealth-building.
But probably the most important topic was the danger of pushing growth for growth's sake.
All too often we have seen banks reach for growth and end up taking on more risk than they could or should handle. Or they have gone into a line of business that they knew little about.
This board recognizes that it must work within the parameters of the economy in the bank's service area. Building the community and putting service ahead of price are the best ways to ensure that this bank can prosper for at least another century.
