High-performing community bankers often speak at "dog and pony shows"- informational meetings at which banks can display strengths and discuss performance.

They are serious get-togethers run by investment bankers. At the two I attended recently-one hosted by New York's Sandler O'Neill & Partners and the other by McConnell, Budd & Downes, Morristown, N.J.-the strongest drink I saw was Diet Pepsi.

Those attending are largely institutional investors who buy community bank shares for their portfolios and hedge funds. So they naturally are most interested in performance numbers, such as efficiency ratios, chargeoffs, and balance sheet strengths.

Most of those at the two conferences had assets in the low billions. To some community bankers this is laughable because several billion is not a community bank. But as the CEO of $1.2 billion-asset NBT Bancorp of Norwich, N.Y., Daryl Forsythe, put it: "Community banking is a philosophy, not a size."

My interest was to learn how these banks achieved their success and find out what bothers them in today's environment.

When asked who their main competitors were, I expected these chief executive officers and chief financial officers would answer with the names of money-center and superregional banks.

Instead they cited Merrill Lynch, Countrywide Credit Industries, large local credit unions, and "1-800 anybody."

Naturally, each presenter stressed the service his bank gives as a reason for its success, but service does not mean giving the store away.

As Michael Elliot, chief executive of National City Bancshares of Evansville, Indiana, put it: "When we look at a bank to buy and it has $250,000 of waived service charges in a year, improving earnings is a lay- up."

Two themes came out of the meetings I attended. First, many community banks have too much capital, not too little. It is burning a hole in the pockets of management as they try to earn a decent return and keep their capital surplus from dragging down returns on equity.

I remember when a spate of New England thrifts were converting from mutual to stockholder-owned status. As one person put it, "They had so much capital to use that anyone who came into the bank in a pair of overalls that had a hook for a hammer could get a loan as a builder."

But it was also stressed that the key to high-performance community banking is empowerment of employees.

As NBT's Mr. Forsythe-a two-year employee of his bank who came in from the aerospace industry, said: "As soon as we took over the bank, we gave authority to make loans and decide other issues back to the branches and stopped having everything flow through Norwich. The impact on morale was fantastic."

When staff members own a high proportion of their bank's stock, they tend to perform better. One attendee friend of mine, whose bank had been bought in an unfriendly takeover, acknowledged to me that this never would have happened had the bank had a stock-purchase plan.

Other key points:

Retaining the individual names of acquired banks in the overall generic name maintains local loyalty.

Hiring bankers with a 15- to 20-year following brings their loans to you, as well as their good people.

As one speaker put it: "We have no hiring freeze. We will hire any good commercial lender who wants to leave a major bank just as long as he can bring in enough business to pay for himself."

But as another said: "Longtime employees can be a drawback. They get in the way of change."

How can this be cured without firing them? Again the answer is empowerment.

Subscribe Now

Access to authoritative analysis and perspective and our data-driven report series.

14-Day Free Trial

No credit card required. Complete access to articles, breaking news and industry data.