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Size Does Matter

A community bank is widely viewed as a bank with less than $1 billion in assets under management. As a part of this distinction, community banks are keenly focused on their commitment to build a banking relationship with clients that meets their clients’ unique needs. This can be compared to larger banks where their commitment is more focused on meeting their sales objectives and, often, directing clients to their products with minimal regard for a client’s needs. Personal relationships may be a throw-back to the past, but these relationships give community banks the edge and, from that, come long-term, multiple-account relationships, customized service for their clients, and better banks. As should be the norm in other service industries, it is the client that community banks are most focused upon.

Community banks obtain deposits from local individuals and businesses and lend them out to local borrowers to help fund local home purchases, the creation and expansion of businesses in our area, and other personal and business-related needs. Funds not lent are typically invested in secure, U.S. government-backed securities. Those deposits if held at a large bank will fund loans not only locally but also across the country, internationally and may well buy foreign currencies or bonds, corporate stock or bonds and various other securities.

The question becomes, where do you want your hard earned money invested? At home, or who knows where.

Community banks are also more flexible in tailoring their loan policies to small business clients. Being that loan officers at community banks are closer in the chain of command to senior managers, they generally deal with less bureaucracy and, therefore, have more discretion in lending with reasonable exceptions. The short chain of command also gives senior managers better oversight over credit performance, also enabling them to understand the borrower and often enabling direct involvement with the borrower, thereby further cementing the banking relationship. Score another one for community banks.

Following the War for Independence, our fledgling country found its economic state was in shambles. With the guidance of one Alexander Hamilton, the then Secretary of the Treasury, the first bank was established in 1791 in the city of Philadelphia. Fast forward to today, innovations have been seemingly non-stop in the industry. Not too long ago, ATMs (automated teller machines) were introduced and soon became a mainstay in our society. Today, it is common-place for bank clients to conduct the majority of their banking from the comfort of their own home or office, or even when on the road. Internet access and mobile banking has caught the attention of community banks and these services are being made available to their clients due to the enduring focus on meeting the needs of locals business and individuals. Don’t loose sight of the fact that the commitment of community banks is focused on you, the client.

Those community banks that amplify their effort to satisfy the needs of the older generation, as their long-term and most trustworthy clients, also need to focus on those clients coming into the ranks of bank clients.

A high proportion of older clients will continue to use the brick and mortar bank offices they have used for decades. Increasingly, however, bank clientele will be comprised of what are commonly referred to as “millennials”, those who were born somewhere between 1982 and 2004. Recent reports underscore that nearly 42% of millennials want to use exclusively online banking services. This growing population never knew the world without technology. It implies that an internet and mobile banking application must become an integral part of a community bank’s services to appeal to a younger generation of community banks’ clients. That adaptation of technology in banking is happening right before our eyes.

You could say that banks have had a lot of practice knowing what their customers want and how to provide it to them. Convenience and seamless transactions are going to be the major factors for banks’ success in the coming years. Providing a remote access to most banking operations, an internet based or mobile banking application will undoubtedly become one of the main means community banks will continue to fulfill the needs of their clients. I wonder if Alexander Hamilton considered horseback banking in 1791?