An old and very true maxim teaches that “charity begins at home.” In the American financial system, it should be just as commonly recognized that banking should also start at home, in the communities of the people they serve.
“The community bank model is very unique,” notes Bill Loving, the recently retired president of Pendleton Community Bank and former chairman of the Independent Community Bankers of America. The ICBA calls community banks “an integral part of main street” because “they reinvest local dollars back into the community and help create local jobs.”
At the most basic level, a community bank is defined by the Federal Reserve System as “having less than $10 billion in total assets.” It adds that “this portfolio has the largest number of institutions of any federal reserve portfolio.” That institution also evaluates community banks on not just assets, but also “risk profile, business activities, and operational complexity.”
They are “not defined by size, but by the model it operates,” says Loving.
Loving explains that community banks embrace a defining strategy of focusing financial activity back into the communities they serve. They “create economic value in that area” potentially doubling the impact the area would otherwise create. Deposits made by the community help to fund loans and other services that only focus on that locality, as opposed to supporting services in other states or even foreign countries.
“We’re not taking deposits and sending them to New York to fund a loan in Florida,” he explains.
Challenges over time have come from federal regulators. The bank crisis of 2008 seriously afflicted every major bank in the United States except BB&T. Regulations passed by Congress subsequently put community banks under the same exacting regulations as major institutions.
What most do not realize about increased regulations is that they always favor larger and wealthier companies and institutions. Smaller competitors trying to comply with the same rules have the same cost of doing so. That cost is a larger relative obligation to a smaller company than a larger.
Larger companies sometimes see increased regulations, or higher minimum wages, as forces that create disadvantages for community banks in one sense, locally owned small businesses in another. Community banks, though the ICBA and other institutions, argued successfully that “a differentiation by size and character of the bank” should affect the regulatory environment and response.
Community banks serve a national purpose in supporting rural localities, but they also have different missions and purposes than large “megabanks.”
“Our model operates on one model, trust,” explained Loving. That comes from both a risk-averse, financially conservative strategy in business operation, but also in community support. “Think about when people in the community start looking for contributions, such as the Little League. The first place they think about is their local community bank.”
Highlands Bank serves as an example of how community banks evolve to meet changing conditions. Based in Petersburg, the former Grant County Bank had only one branch in Grant County. With branches opening in Berkeley County and elsewhere, the name Grant County Bank had sentimental value, but potentially confused customers elsewhere. The name changed to reflect the bank’s success.
Community banks also can cross state lines in their operations. PCB has several branches in the Shenandoah Valley of Virginia. Its name changed from Pendleton County Bank. Burke and Herbert, a community bank based in Virginia, was established in 1852 and is one of the oldest banks in continual operation in the United States. Merger with Summit Community Bank gave it a footprint in West Virginia.
Community banks have also evolved along with changes in the way customers do their banking. Loving noted that his career spanned “the days of the check to the day of the digital investor.” The rise of digital financial transactions and companies that specialize in them “create a challenge for all institutions” but “we’ll find a way to work through that.”
When customers use those kinds of institutions, their communities do not enjoy the multiplier effect of the money circulating through local banks and their customers. Dollars placed in the care of community banks have much more impact locally than their mere face value as they circulate through a community via loans and other transactions.
Community banks compete by balancing the needs of customers who prefer legacy, face-to-face services with those who favor as little direct human interaction as possible when doing banking. Loving explains that the challenge lies in ensuring that all customers feel valued and well-served, regardless of whether they go to a branch or conduct transactions online.
At the end of the day, regardless of how one prefers to bank, community banks take pride in ensuring that a human voice is on the line when a customer calls with a problem. Personal service and good financial reputation make up the foundation of how community banks do business.
One way in which PCB has responded to the challenge of digital preference customers is in the ITM. As opposed to an ATM, automated teller machine, the ITM is the interactive teller machine. During banking hours and days, the ITM can connect a customer with help quickly.
Community banks also tailor their activities to the needs of their area and local economic conditions. Banks in the Potomac Highlands by necessity must have an agricultural and small business focus. Agriculture and small business, both those that serve locals and tourism, serve as the foundation of local economic activity.
Bruce Fitzwater, president of Grantsville-based Calhoun Banks, described a different focus for his bank. Located in a rugged section of the state with more sparsely scattered communities and fewer large farms, Calhoun Bank has for a long time followed a strategy of first and foremost providing residential loans. He shared that “64 percent of our loan portfolio is mortgages” and that “we strive to help people out with their homes.”
“Each home loan is different,” he added, explaining that they work closely with each applicant to try and structure home loans to fit their needs and conditions, as opposed to what might be easiest or most profitable for the bank.
Like Loving, Fitzwater emphasized the importance of a community bank and its staff to the community, including “our folks working at ball games in the concession stands” and “judging contests.”
PCB, Highlands Bank, and Burke and Herbert Bank employees have the same high level of commitment, from PCB staff working as coaches and volunteering in festivals to Highlands Bank’s support of charity golf tournaments at Valley View in Moorefield, to the good efforts of Burke and Herbert staff throughout the area.
Community bank presidents could rightly ask when the last time was that someone saw a Chime, Citibank, or Wells Fargo employee volunteering to help out personally and locally. They could also point out that Bank of America appears on no Little League baseball jerseys.
Nor would any of those institutions find it financially worthwhile to focus, as community banks do, on the economic success of small towns and rural areas.
