What is a community bank?

We can all agree that there is no clear-cut definition for “community bank.” How would you answer this question?
Investopedia says: “A community bank is a depository or lending institution that primarily serves businesses and individuals in a small geographic area. Community banks tend to emphasize personal relationships with their customers. These smaller banks typically do not have the product range or branch networks available at larger institutions and often provide loans to local businesses and individuals who may not qualify based on the more standardized criteria used by big banks.”

While I do not totally agree with the Investopedia definition, it is somewhat accurate. It also identifies a few of our strengths and weaknesses.

Who moved the cheese?

We like to think by emphasizing personal relationships, we provide better service to our clients. This has been the cornerstone of community banking. We also differentiate ourselves by channeling most of our loans to the neighborhoods where our depositors live and work. We help our communities stay strong and vibrant. In contrast, many larger banks pull deposits from local communities and make loans in other states.

These are all reasons to be proud to be community bankers. However, it does not explain why the number of community banks has fallen from 14,323 in 1988 to 4,979 in 2018, according to the SBA. It also does not explain why our deposit market share has dropped during the same time.

We all know there are several reasons for the decline in the number of community banks and our declining deposit market share. Changing demographics is one major variable. While baby boomers like me and the greatest generation highly value personal service, younger generations are looking for something different. My children, who are millennials, have no desire to come into the bank to open an account or borrow money. They want to do business when it is convenient for them and do it on their phone or iPad. They do not value personal relationships like previous generations.

They define great service in a different way than we do.

If you attended ICBA Live in San Antonio, you heard Mike Walsh talk about the new rules for a new world at the opening general session. He clearly stated we need to be flexible enough to provide service to our clients in the way they desire or someone else will.

As community bankers, we can sometimes be a one-trick pony. We have relied on personal relationships as our primary differentiator for so long that we have trouble understanding that is not what many potential clients are looking for today. Instead, they are looking for online transactions, product features, etc.

I think we can provide the best of all worlds to our clients. We just need to be nimble and bold enough to invest in the technology to serve younger generations the way they desire while not losing that personal touch.

What can we do to remain relevant and continue to be successful?

As community banks, we do not have the financial or human capital to develop and maintain innovative technology products and services. That means we must seek out third-party vendors to partner with. Fortunately, there are a lot of options for us from which to choose.

Change is difficult for all of us, especially as we get older. The idea of considering fintech options that appeal to younger generations can be overwhelming.

ICBA can help you consider the benefits offered by a limited number of fintech companies they have vetted. We cannot rely solely on their due diligence, but they do provide a first line of defense as we consider innovative technology. You can go to ICBA’s ThinkTech page and get information on vendors to help make our banks more attractive to the younger generations. This is not the only option for improving the technology we offer our clients, but it is a starting place.
Your core service provider is another source. While they may not be at the forefront of technology, we need to make sure we take advantage of the technology they offer us to appeal to a broader range of clients.

Attending the MIBA Annual Conference vendor showcase is another way to visit companies that offer innovative ways to provide our clients with time-saving products and services. MIBA’s endorsed vendor program provides another level of vetting for you.

Financial Education

The number of regulations and procedures we must follow today is daunting compared to when I started in banking in 1980. It is darn near impossible for each of us as community banks to have someone read, understand, and be prepared to train our associates on all the regulations, policies, and procedures we need to know.

We are fortunate to have access to the MIBA training webinars, seminars, and conferences to benefit from shared costs to accomplish this overwhelming task. We also get some outstanding presenters we would otherwise not be able to afford.

Do not miss this benefit as a MIBA member. Working together we can accomplish what we cannot individually.