Depending on where you stand in the financial services world, your perspective can vary significantly. A Wall Street investment banker probably wouldn't know how to get started on an agricultural loan, and a community banker in North Dakota likely wouldn't have much interest in a naked credit default swap. But there might be no greater break in viewpoints, and in philosophies, than between community banks who exist to serve their communities and financial number crunchers who often don't understand what their metrics can't tell them.
This disconnect was evident in a recent American Banker report, which found that community banks have frustrated analysts due to their reluctance to close branches. While the nation's largest banks have been shuttering branches at a rapid clip, community banks have proceeded more cautiously. Apparently they have been too cautious for some financial analysts, who think that these institutions are being weighed down by the cost of operating branches. (If there is an objective standard for how quickly the nation's community banks should be liquidating their branches, it is a metric with which I am unfamiliar.)
Any number cruncher would know that community banks don't have many superfluous branches because they didn't join the branching boom of the 1990s and 2000s just to capitalize on an overheated economy. As American Banker itself reported, while the nation's total branch count rose by 24% from 2001 to 2011, community bank branches increased by less than 3%.
What the numbers don't tell, however, is why a community banker would want to keep a branch open when it is not improving the institution's efficiency ratio. The folks in the green eyeshades can't for the life of them figure out why community bankers would want to keep a branch open when it is not reaping returns that meet the analysts' standards. What they forget is that community banks exist to serve their customers and communities, not efficiency ratio-obsessed market observers. That is why they were chartered in the first place.
The fact is that community banks measure return on equity by more than just dollars and cents. Because they are in the business of promoting and developing local economic growth, community bankers account for those priorities in most any business decision they make. The community bank return on investment includes meeting customers' everyday needs and enhancing their quality of life so they can be valuable and productive members of the local community.
In these cases, bank branches represent more than just numbers on a spreadsheet or negative ROI to an analyst. Community bankers only have to answer to their customers and their stockholders who understand the value of a local bank to their economic well-being, and they can see first-hand the utility of branches to local communities. Access to a valued bank branch that will promote local growth is often more important than a marginally improved efficiency ratio. Further, community banks often want to demonstrate their commitment to local communities, even if megabanks are willing to take the "here today, gone tomorrow" approach to branching.
There are some aspects of community banking that don't always show up on a spreadsheet. Community bankers measure success by total return, but that's not something I would expect many analysts to understand.
Terry J. Jorde is senior executive vice president and chief of staff of the Independent Community Bankers of America.