Community Banking

Community Bank…More than Just a Name

IntraLogoTMThe recession and subsequent financial fallout put a negative spotlight on “big banks.” This increased the popularity… attractiveness of the community bank.

Many local banks today refer to and market themselves as “community” banks. But, are they really?

What does it mean to be a true community bank? The definition is two-fold – the FDIC’s size, asset-based definition as well as the bank’s behavioral characteristics, how and where it conducts business. Both attributes must be taken into account to determine whether a bank truly is a community bank.

FDIC’s Community Bank Definition

An institution that has less than $1 billion in assets is a community bank if it:

At year-end, does not have an asset concentration exceeding 50% of total assets in non-community specialty banks, including:

  • credit card specialists,
  • consumer nonbank banks
  • industrial loan companies,
  • trust companies, and/or
  • bankers’ banks; and holds less than 10% of its assets in foreign assets.

A bank that has assets of $1 billion or greater is a community bank if it:

At year-end, does not have an asset concentration exceeding 50% of total assets in non-community specialty banks, including:

  • credit card specialists,
  • consumer nonbank banks
  • industrial loan companies,
  • trust companies, and/or
  • bankers’ banks; and holds less than 10% of its assets in foreign assets;
  • Has a ratio of core deposits to assets greater than 50%
  • Has a ratio of loans to assets that exceed 33%
  • Has no single branch office that exceeds the branch maximum deposit limit of $5 billion
  • Has no more than 75 bank offices
  • Operates in no more than two large metropolitan statistical areas (MSA), defined as an MSA with a population of more than 500,000
  • Operates in no more than three states

Behavioral Characteristics of a Community Bank

Community banks focus on providing traditional banking services to the community in which they operate. A community bank obtains most of their core deposits and makes most of their loans, residential and commercial, locally. For this reason, community banks are often considered to be “relationship” bankers as opposed to “transactional” bankers.

A community bank, typically privately owned, locally controlled and with employees often residing in the community they serve, has specialized knowledge of their local community and their customers. This expertise allows them to base credit decisions on local knowledge and nonstandard data derived from long-term relationships with their customers. Community banks are less likely to rely on the standard underwriting models used by big banks.

This relationship approach to lending is particularly important to a community’s small businesses. Small businesses, especially small start-up companies, may be unable to satisfy the requirements of the more structured underwriting guidelines the larger banks use. The community bank’s relationship lending approach is often the only avenue for small businesses to obtain loans and access to other financial services.

Managing relationships at a personal level is the hallmark of community bank.

Beyond the asset-driven definition and behavioral characteristics, a true community bank creates a “community” culture both within and outside its walls.

True community banks get involved with their customers and with the community at large. They sponsor Little League teams, participate in charitable functions and attend social events.  They are visible in their community.

True community banks strive for the best customer service. Unlike the big, national banks, community banks don’t serve millions of customers. Consequently, their customers are more than just an account number on a computer screen. Every customer is treated as a friend and neighbor, which in many cases, especially in small communities, they are.

True community banks put the decision-makers in front of the customer. If you walk into a big bank to apply for a loan, you’ll most likely never meet or speak to the person who makes the decisions. Community banks operate transparently, allowing their customers to communicate with the people who make the financial decisions.

Community banks contribute to the local economy. These institutions stimulate, direct, and improve local economies by opening business accounts for entrepreneurs or extending loans to corporations. The community bank’s fortunes are intimately tied to the fortunes of their local communities. So, they have a vested interest in the economy of the community in which they operate.  The more the community prospers, the more the local community bank benefits.