What is a community bank, and why should you care?

Community banks – it’s win-win

A win-win relationship isn’t something often talked about from a financial institution. Yet collaborative relationships are what community banks are all about. Unlike national and international banks, community banks prosper when their home community prospers.

Some people feel stuck with big banks because they fear losing conveniences like mobile banking and a plethora of ATMs. But many community banks (Fremont Bank among them) offer the same convenient services. Any service that is missing is balanced by knowing that the money you have on deposit is going to work in your local economy and create jobs locally.

In fact, local small businesses have created most new jobs over the past 25 years – a total of 12.9 million net new jobs to be exact – accounting for two out of every three jobs added to the economy. The ability of small businesses to grow profitably is mostly dependent on the ability of local community banks to lend them money.

Because community banks get to know the borrower and their family, learn about the business and understand the client’s market – they are much better at assessing risk and can therefore make loans to the broadest group of small businesses.

Now if we haven’t bored you with the theory, let’s underline the benefits.

Six great things about community banks

There are many reasons community banks continue to thrive, as there is a renewed awareness that they are good for the individual, good for small business and good for the economy. Here are six things that are different about them:

1. Community banks are an integral part of the community. Your dollar in a small bank will likely underwrite a local home or business loan. The community borrows from itself and growth occurs collaboratively in a virtuous cycle.
2. Community banks are simple and straightforward legally. The vast majority are either stand-alone corporations or owned by what is called a bank holding company, rather than a financial holding company. A financial holding company allows the bank to divert 80% of their business elsewhere. This means your local bank will stick to its knitting.
3. Community banks specialize in relationships, not transactions. This is key, as relationships are one of the most important contributors to any community’s success. The stronger the relationship between lender and borrower, the more economic efficiencies increase, and the community grows accordingly. Bigger banks are forced to engage in “transactional banking,” which they master through economies of scale and computerized lending, never truly knowing their customers.
4. Many community banks make their money from loans, rather than fees. They are far more likely to rely on interest from loans and other traditional sources of income, rather than fees, which big banks often rely on. Therefore, they are motivated to understand the most effective way to issue loans and contribute to customer strength.
5. Community banks are often locally or family owned. Or both, as is the case with Fremont Bank. Community banks are “small” businesses themselves and have grown from the ground up. They understand the nuances of running a local business and can offer that knowledge as well as the comradery of being “in it together.”
6. Community banks understand how finance can be intimidating and are there to help. Because of their understanding of banking products, their clients’ business and the community market, they can advise clients on the exact product that will meet their needs. And if a question or problem arises, the relationship manager is only a local phone call away.

Community banks have a very special niche in the American economy that depends on their personal customer service and their unparalleled social and business impact on their communities. They will continue to provide that personal touch while remaining key to the prosperity of the cities and towns that depend on them. Their support for non-profit groups and community charities and their close relationship with the community’s small businesses means they play a central role in Main Streets all across America, keeping the essence of “community” in banking.