WEEKLY ADVISER: What's a Community Bank? It's All in the Attitude

I was embarrassed.

I received a call from the Independent Banker, which is the magazine of the Independent Bankers Association of America - the Sauk City, Minn.-based national trade group of community banks.

"How do you define a community bank?" their correspondent asked.

In the two years since my column was switched to the Community Banking page of the American Banker and I was asked to concentrate my writing on topics of specific concern to these independent bankers, I never had defined a community bank for myself.

As I thought about the editor's question, I knew that my definition could not be just one based on size. For as a bank grows, it does not become a regional or superregional solely based on a level of footings. Rather, community bank status is a matter of attitude and a way of treating the public.

So I concluded that a community bank is one that knows you by name and occupation, that tries to make your request bankable instead of going by the book, and that is able to keep decision-making local and quick instead of sending all requests to a distant location for evaluation.

I remembered my first mortgage request in 1963.

A New York thrift had advertised 5% mortgages, yet when I called to find if I might be eligible, the officer on the phone replied "Did you ever lend money on a diamond?" meaning how can I trust you without deep examination. On the other hand, when I then called a banker I knew and requested a mortgage (albeit at a slightly higher rate) I will never forget his instantaneous response:

"Paul, you got your mortgage."

That's a community bank. Incidentally, both organizations were of similar size.

But community banking need not mean giving away the store.

As an example, after my column in which I wrote of the grocer who, to avoid alienating a customer, gave a woman back the money she said she had paid for a rancid cranshaw melon, even though the store had not sold it to her (they knew, as they hadn't had cranshaw in the aisles for months), I received a response from Stevens Plowman, of the Farmers and Merchants Bank of Hannibal, Mo.

Is Farmers and Merchants a community bank?

As positive evidence I can report that the letterhead on the bank's stationery shows its pride in its town by listing all 11 directors but no officers by title.

Mr. Plowman wrote:

"We agree very strongly with the example of waiving fees for good customers. (Our definition of good is how long they have been a customer at the bank, not really how much they keep in deposits).

"But we have a real problem with the example of the lady at the grocery store. She obviously lied, and was trying to steal from the store. I wouldn't let an employee behave that way, should I let a customer behave that way?

"We work very hard at getting rid of customers like that no matter how much they keep on deposit."

Mr. Plowman added that they feel 10% of the population is "just simply predators, who will lie, steal, and take advantage" again and again. But he admits:

"We try to get that bottom 10% to bank somewhere else, but when a person in that group keeps $100,000 on deposit, it gets to be a tough decision."

Is this still a community bank? Sure. For it fits our bill of particulars: they know their people, and they make decisions right in the community, harsh as they may be.

In its personal approach it is no different than the bank whose president came down and opened the vault on Sunday for a good customer who forgot to get travelers checks for a trip starting that day, or the bank president who personally drove the checks for a realty closing to the lawyer's office because they had to get there and no one else was free to do the job.

All of these, then, are reactions of community bankers.

They may be harsh or they may be benevolent, but what typifies the policies of all community banks is that decisions are made not based on written policy or memos to and from headquarters but by gut reaction to the individual and the situation.

And even when the one bank's letter states that there are customers they want to throw out of the bank, the stationery proudly identifies the 11 community leaders who endorse this policy.

That's what community banking is all about. And it is obvious an awful lot of Americans like their banking served up this way.

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