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5 fundamentals to help your community bank survive

Good news: It’s not rocket science. Better news: You’re not astronauts

5 fundamentals to help your community bank survive

It’s been several years since I was the newly hired outside CEO for a large community bank and had to address the issues the former management left behind. These weren’t dumb or ill meaning people. But they got sideways with major constituencies (stakeholders) and a change was appropriate.

In the intervening years, I’ve observed many community bank leaders making their own specific choices among competing ideas and issues that didn’t always work out well.

If I could relive my days as the new out-of-market CEO coming into a good-sized community bank today, what would I concentrate on?

What community bank leaders should look at

I gave this a lot of thought recently, and here’s what I came up with:

First, I’d identify my major stakeholders and formulate principal activities aimed at their concerns.

The list could be pretty long. But for the sake of simplicity, I’ll identify five that I think are essential to work on immediately. Success will come from focus and a bona fide empathy for what’s important to them.

In fact, let’s broaden the definition of success in our current brave new world and include the ability to survive as an independent entity.

Second, I’d cite one or two things for each stakeholder group that the entire organization should focus on.

It needn’t necessarily be “common wisdom” either. These would collectively constitute my platform and I’d repeat these points relentlessly.

So, with those points in mind, my somewhat simplified stakeholder list today is Shareholders, Employees, Customers, Examiners, and the General Public.

We might argue about the precise order and I’m tempted to put employees or customers at the head of the list. Without either of them, there’s not much of a business to protect.

Shareholders:  Make them proud, rather than just rich.

There’s nothing wrong with being rich if one comes by it ethically. But there’s more to being a community bank owner than simply the dividend.

There’s the satisfaction of nurturing, in a collaborative sense, the well-being of where each of us lives. The head of my family ownership group when I was the new CEO had a simple mandate. She said, “We used to be proud of the bank and my family and I want to be proud of it again.”

Community bankers are almost always closely associated with local economic development and concerns of a public welfare nature. These things need to be prominently in the forefront of any bank’s agenda by both word and deed.

Community bankers also need to jealously guard their reputations and behave responsibly and with a sense of honor and decorum. We need to both look and act like persons who are worthy of the respect, esteem, and confidence of our local communities.

Employees: Treat them with utmost respect as individuals and colleagues engaged in a worthwhile enterprise.

Be sure that the operating culture of the business expresses your values and that there are no disconnects in collectively what you say and what you do. If there are individual disconnects, correct or replace quickly.

You should also be keenly aware that employees, particularly the new hires, pick up on actions more quickly than policy statements.

Your employee manuals are really “written” in behaviors, not simply words.

Customers:  Understand which ones are the key contributors to your business success and your profit plan.

Figure out who makes up each of the net profitability tiers of the bank. Recognize and regularly thank the ones who are at or near the top. Then cross sell to improve the profitability of the ones in the middle.

Finally, eliminate (or unapologetically charge) those at the bottom. These decisions should be data driven and not derived by seat-of-the-pants “wisdom.” You’re flying blind otherwise, and today, that’s just irresponsible to your constituencies.

Another thought. Our customers have their strongly felt opinions but maybe we are the ones that need to change our minds.

We need to be open to that.

Examiners:  They have their jobs too and sometimes it’s to call you out on things that you are doing that are not in the best interests of your ownership or the financial system.

No community benefits from a bank with lousy credit quality or one with its reputation in tatters.

But, you represent the ownership and should not be bullied or intimidated by field examiner behaviors that you know are wrong headed. Choose your battles carefully but the best defense is not to have to have to have them at all. Squeaky-clean compliance with law and regulation and top quartile credit quality metrics will do wonders in minimizing these discussions or confrontations.

Banking Public:  Demonstrate that the community is important with significant community service by you and your employees.

It’s not the size of the contributions budget that ultimately makes the difference. It’s how invested you and your staff are with your time and talent in community activities and projects that contribute to the common good of everyone.

Have you ever met anyone who doesn’t think that United Way involvement is “good business”?  

Making it work day to day

Ask three questions about your bank’s community involvement:

1. What have we done? 

2. What have we done lately? 

3. What more can we do?

There are many industry pundits who have much to say on the subject of being good salesmen or good banking technocrats.

They are all suspect, from my point, as they spend too much time trying to sell us on ideas on which we probably already have rather firm opinions. Too many social media sites are thinly disguised spamming opportunities, in my opinion.

Ultimately, if you do deliver what each of your stakeholders needs, and not just wants, you have positioned yourself to prosper abundantly.

The skill is figuring out real needs and making sure they trump simple wants. The difference is not always obvious. But if you listen carefully you’ll eventually and consistently hear what’s important to your bank’s long-term prosperity and to all your stakeholders.

Ed O’Leary

Banking Exchange Contributing Editor Ed O'Leary, a veteran lender and workout expert, spent nearly 50 years in bank commercial credit and related functions, working with both major banks as well as community banking institutions. His last job before retiring was as the CEO of a regional bank headquartered in Alburquerque, N.M. He earned his workout spurs in the dark days of the 1980s and early 1990s in both oil patch and commercial real estate lending. O'Leary began his banking career at The Bank of New York in 1964, and worked at banks in Florida, Texas, Oklahoma, and New Mexico. He served as a faculty member and thesis advisor at ABA's Stonier Graduate School of Banking for more than two decades, and served as long as a faculty member for ABA's undergraduate and graduate commercial lending schools. Today he works as a consultant and expert witness, and serves as instructor for ABA e-learning courses. You can e-mail him at [email protected]. O'Leary's website can be found at

In mid-2016 O'Leary's "Talking Credit" blog received a bronze excellence award for the Northeastern Region from the American Society of Business Publication Editors.

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