What in the world is a “community bank”?

I hear this distinction a lot: We’re not one of the big banks; we’re a community bank. But what defines a “community bank”? Is it size? Geographic scope? Community involvement?

A few years ago, this was a pretty easy question to answer. You had large money center banks, large regional banks and bank holding companies, and a bunch of very small banks that concentrated on one or two local towns. The “community bank” was the one that, literally, lived and died by the health of the community it was in.

But these days, it’s hard to find local banks that are tied to just one town. Heck, even little Monson Savings Bank has offices in Wilbraham and Hampden, in addition to its tornado-ravaged home town. About 17 years ago, Brockton’s Campello Co-Operative decided it wanted everyone to know exactly where it stood. It changed its name to The Community Bank. Then it went off and started opening branches outside of Brockton.

There’s nothing wrong with any of that, and both those institutions (and many others like them) are big donors to local charities, so they’re certainly big supporters of their communities. But that still doesn’t answer the question: What defines a “community bank”?

Swing by the website of the Independent Community Bankers Association, and you’ll find this bit of vague verbiage: “There are nearly 7,000 community banks across the nation. What distinguishes a community bank? Personal service, local credit decisions and local ownership.”

While I hate to break it to the very nice folks at the ICBA, under that three-point definition, all of the nation’s credit unions are community banks. (And probably they are. But this isn’t the column to take up that debate again.) I’m sure the ICBA would harrumph at that conclusion.

LinkedIn To The Community 

Another measure used to be that banks under $1 billion in assets were considered community banks; those over that limit were just too big and regionalized to fall into that category. But that was back when $1 billion meant something. Massachusetts now has 22 banks with more than $1 billion in assets apiece, and another six within spitting distance – as long as we think of $50 million as a good spit.

At the Community Banking group on LinkedIn, this is a discussion that’s been running for a couple of weeks now. Jon Elliott is a banker with Bank of Clarke County in Virginia (it used to be called Bank of Berryville until it got too big). He came down on the side of many others in the group who claim that size doesn’t matter.

“It’s a matter of putting the community in the community bank,” he wrote. “Being involved in the lives of the people and businesses in the community is important. Being one to visit the volunteer fire department spaghetti dinner and helping the local PTA with a hat-and-glove drive for the students. It’s people being in the neighborhood and being recognized as their local banker. Local ownership, management and decisions are part of it, but local involvement is a bigger piece to being a true community bank.”

What’s interesting in that analysis is that Bank of America and Citizens Bank would pretty much be counted as community banks if that’s the whole of it. The folks in B of A branches are out working in their communities just as their counterparts at Needham Bank are.

The difference though, is the dependency on geography. There are some great people at People’s United Bank, out making a difference in the communities where they work. But People’s United is spread from New York State, through Connecticut, Massachusetts, Vermont and Maine. If it closes a branch in Holyoke, or if Chicopee falls on hard times, it’s not going to make a big difference to People’s United.

But it will make a world of difference to Holyoke-based People’s Bank. That institution has $1.3 billion in assets – bigger than many community banks – yet its fortune is tied to the Pioneer Valley in a way that People’s United is not. People’s Bank is probably a community bank. People’s United bank is not.

There are one- or two-town banks with local employees, local management and local leadership. Some of them (not very many) don’t do much to support their towns and cities. They’re not community banks; they’re just small banks.

Being in a community isn’t the same as being part of it. What’s a community bank? It’s a bank that beats as the heart of the body. Remove it from the region, and the towns it serves will suffer. So this is the question every bank president should be asking if they think they’re running a community bank: If your institution wasn’t here, what would happen?

You can define yourself as a community bank if your bank defines the community.