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Keeping the “community” as you grow

As consolidation continues, more banks confront size-culture balance

As community banks grow larger and evolve in how they serve customers. how do they keep the special flavor in the recipe? As community banks grow larger and evolve in how they serve customers. how do they keep the special flavor in the recipe?

I was recently facilitating a planning session for a relatively high-performing bank approaching $1 billion. Although I am not much of a touchy, feely guy (mostly economically/financially driven), this group wanted to discuss at some length how they can maintain the community bank culture and “feel” as the bank transitions over the $1 billion level.

The group had a healthy discussion with respect to the importance of the community bank culture to this organization as it grows. After discussing this challenge, I finally asked them how they described a community bank culture.

What “community” means

They gave me a variety of separate descriptions for a community bank culture in their organization that they would like to preserve as they get bigger, including the following:

You get to talk to a real person. Many banks, as you well know, have an automated system so that when you call in you get to choose between items 1 and 6. Not this bank. You actually talk to a human being, and the phone is answered by the third ring.

You are a name, not a number. This bank, as large as it is, has many “city” locations and many rural locations. It does not matter whether it is the big city or the rural markets, you still get called by name, not by your account number.

Decisions are made locally. Even with its many locations, this particular bank still maintains decentralized decision making. The branch managers (or city presidents as they are sometimes called) have lending authority that is significant enough for them to handle and make decisions on virtually all loans that come into their particular location.

You recognize the customer when they walk in the door and call them by name. While that is not possible in all the largest markets for this bank, it is certainly part of the culture in the smaller markets, and it is the “goal” across the bank.

Bank staff and officers participate and invest in the community. This bank was heavily active in everything from the Chamber of Commerce to the county fair to the Future Farmers of America to teaching in the high schools and the like. This not only helps employees know their customers, but it helps the customers know the employees.

There is a knowledgeable staff in each market as it relates to that market. The folks that work in that market are not from a different market—they are from that market, often grew up in that market, and understand that market.

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The bank is able to balance the customer’s needs with the bank’s need for compliance. Obviously, compliance is difficult and causes delays with respect to meeting customer’s needs. This bank recognized there has to be a balance between compliance and fulfilling the needs of customers.

Not only is external customer service important in a community bank culture, but so is internal customer service. This includes everything from operation, support, and lending all the way to wealth management, retail, lending, communication, and the like. This bank understands that treating employees right often (though not always) translates to treating customers right.

The goal for this organization is to continue to maintain its culture as it grows. I believe they will likely do that primarily because they have decided they need to focus on it, make it a long-term strategy and an action item. This will cause a continued focus as the bank blows through the $1 billion level and then the $2 billion level.

Looking more deeply at “community feel”

Beyond simply keeping a certain “feel” as a bank continues to increase its asset size, this particular bank’s mindset has a good lesson for all community banks. While the regulators may not have a specific framework or set of requirements applicable to a community bank’s culture, it certainly has expectations and requirements as it relates to corporate governance, ethics, community investment, and safe and sound business operations.

Does answering the telephone and calling your customer by name ensure CRA compliance? No, not necessarily. On the other hand, does it point to an overall corporate culture that is interested in knowing its customers, their business, and the general pulse of the community? Absolutely.

Is a community bank that strives to know its customers and be involved in the community more likely to understand the credit needs (and credit risks) of its community and be able to provide appropriate products and services that meet the needs of that community?

Will that then have an impact on the bank’s CRA performance, risk identification and monitoring, and overall asset quality?

You bet.

Again, this is not a silver bullet. Knowing your customers’ names does not directly increase profitability. Nonetheless, that level of attention to detail when it comes to knowing your customers and understanding their needs can go a long way when it comes to making quality loans and understanding your bank’s risk environment.

The bottom line, numbers are important, but let this bank’s practice be a reminder that the people behind the numbers matter just as much.

Jeff Gerrish

Jeff Gerrish is chairman of the board of Gerrish Smith Tuck Consultants, LLC, and a member of the Memphis-based law firm of Gerrish Smith Tuck, PC, Attorneys. He frequently contributes to Banking Exchange and frequently speaks at industry events.

In mid-2016 Gerrish's blog received a national bronze excellence award from the American Society of Business Publication Editors. This followed his receipt of the regional silver excellence award for the Northeastern Region from the same group.

Gerrish formerly served as regional counsel for the FDIC’s Memphis regional office and with the FDIC in Washington, D.C., where he had nationwide responsibility for litigation against directors of failed banks. Since the firm’s formation in 1988, Gerrish Smith Tuck has assisted over 2,000 community banks in all 50 states across the nation with matters such as strategic planning, mergers and acquisitions, common stock private placements, holding company formation and reorganization, and a wide variety of regulatory matters. Jeff Gerrish can be contacted at jgerrish@gerrish.com.

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