Drive into most any town in America and you’re bound to spot one fairly quickly. Whether on Main Street or tucked in a shopping center on the edge of town, a branch of one the country’s 6,600 community banks probably is nearby.
As institutions that offer much-needed credit to small businesses, make mortgages that turn the American dream into reality, and support public projects that enhance our daily lives, community banking’s impact on our country’s economic growth and stability cannot be overstated. While strengthening these institutions is in everyone’s interest, those at the senior level—management and boards—are facing tough choices and challenges as they attempt to modernize, streamline and digitize their banks.
Although there are 57 percent fewer community banks today compared to the number in business when I began my banking career 26 years ago, and the percentage of overall U.S. banking industry assets they hold has declined from about 40 percent to about 14 percent in that period, today’s community banking system is no less vital to consumers and businesses.
A Federal Deposit Insurance Corporation (FDIC) report shows that community banks make up about 45 percent of the industry’s small loans to farms and businesses. Small business is the backbone of America and community banks are the engine that drives small business. Further, the FDIC report indicates that in 20 percent of America’s counties, there would be no banking offices if not for community banks. Those communities would tell you how fortunate they are to have community banks to provide credit and other needed financial products. They would point out local public projects that wouldn’t have happened without community bank support. They would tell you they are also grateful for the leadership community bank executives provide in the business, philanthropic and public realm, and for funds they donate to local nonprofits.
Community banks epitomize all that is important in our industry—the personal touch. Yes, banking is quickly becoming a digital business. And, yes, banks will need to ramp up their mobile and social-media capabilities for reasons of competition and connectivity. Still, banking comes down to making connections with people.
Think what these statistics say about the importance of face-to-face interaction with banking customers: From 2002 to 2014, the number of commercial banks and savings institutions has declined by 2,700 to about 6,650. But in that same timeframe the number of bank branches increased by 9,400; from 86,500 to 95,900, according to the FDIC.
When community banks succeed, they are staffed by individuals who share a sense of the bank’s strategy of offering customers the products and services they want, when they want them. Today, that mandate might mean banks will need to offer such services as new apps on smartphones or they may need to lean more heavily on cloud computing as a means to reduce cost. Regardless of the need, community banks cannot lose sight of the customer, who is becoming much more demanding with the introduction of each new technology. They have become accustomed to a one-click, right-now retail environment, and they expect banks to act in the same manner.
A community bank’s shared sense of strategy hinges not only on how well its leaders read and quickly adapt to their customers’ demands, but also their ability to clearly articulate the bank’s mission and purpose to employees and customers. Those same leaders also must be able to accept change when transformation is necessary.
Nothing stifles potential growth quicker than an inability to accept that some traditions and ways of working must be set aside for the sake of progress and connectivity. When resistance to change is permitted to exist inside the walls of a bank, little good can come of it.
Some may believe that the United States is headed for a time when community banks will vanish and be replaced by just a handful of megabanks. There is no question in my mind that community banks will remain a vibrant segment of the industry, if for no other reason than they continue to make the personal connections that any business requires. We may, however, see the number cut in half again by the time I retire from my career. Those that survive will be the ones that give total attention to the customer, focus on agility and differentiate themselves with the best talent.