BusinessTN

Each day brings new headlines about the deleterious effects that risky lending and failing consumer credit have had on the banking industry. One bright spot amidst the barrage of bad news has been the ability of community banks to maintain the status quo. Most community bankers say their business-as-usual attitude is a testament to steady, conservative growth and familiar clientele.

"Generally, community banks have as an underpinning an emphasis on the relationship with each client," says Tom Stumb, CEO of Nashville Bank & Trust. "Just like a doctor can do a better job for a long-term patient, a banker who has a relationship with a client can do a better job for that client."

Even with long-term clients, deals in this economic climate can take longer and require a little more homework on the part of the borrower and the bank.

"Banks, just like any other business today, have challenges through economic cycles," says Billy Carroll, president and CEO of Pigeon Forge-based SmartBank. "We're trying to encourage borrowers to maintain sufficient liquidity positions." Carroll adds that he believes both community and regional banks not only will survive the tough economy, but continue to thrive.

Sammy Stuard, president and CEO of F&M Bank in Clarksville, notes that Tennessee banks are "very strong in relation to the nation." As a result, he says community banks are seeing new customers who may have been turned down by the bigger banks that are no longer offering a particular type of loan.

"We all can see that credit underwriting is tightened and strengthened--community and regional," says Stuard, who is also the chairman of the Tennessee Bankers Association. "We're doing our credit underwriting no different than we ever have been. We're starting to get some applications that say maybe another bank is not doing construction lending now, to see what our appetite would be for that kind of credit."

Stuard says local bankers can make more informed decisions because they are rooted in the communities they serve. They do not have to depend on out-of-state loan committees that may not know all the economic factors. First-hand knowledge helps banks make good credit decisions and structure loans properly.

"The lack of that relationship has a lot to do with the problems in the big banks," Stumb says. "Formula lending works great when the economy is strong but breaks down when the economy isn't doing so well. [Large regional banks] either make the formulas more conservative or stop lending altogether. A business that wants to expand needs to take the time to build a relationship with a banker."

Intimate knowledge of a market and a particular borrower's track record can sometimes strengthen an otherwise lackluster proposal. Conversely, a lender's knowledge of the market and community could head off pitfalls of which someone outside a community may not be aware.

"In the current credit environment, it's very important that you maintain a constant awareness of the value of collateral," says Art Helf, chairman of Tennessee Commerce Bank in Franklin. "The value of collateral can change dramatically. For example, if somebody pledges stock to undergird a business loan, that has a way of fluctuating dramatically. Having a personal relationship allows you a 24/7 interaction with your customers. By working together like that, the relationship can carry you over a few speed bumps."

Paul Willson, board chairman and CEO of Citizens National Bank of Athens, says community banks are more likely to work through issues with long-standing clients. "We tend not to say, 'We're never going to do another deal like that.' We may want to see something a little differently next time, but we won't just say no."

Relationship banking, easily the most frequent reason given for success in community banks, is just one component. Willson also credits smart growth and even a "good, constructive tension" between banks and bank examiners.

"Regulators have done a pretty good job of helping us stay right down the middle," Willson says. "They'd like to see us do well in the long haul, whereas maybe 20 years ago there was a more adversarial relationship."

Willson says that because many community banks do not trade stock publicly, they are "not subject to the whims of the market. Our written plan is several years out, but our thinking horizon is 40 years. We're leading this bank far beyond my possible life expectancy. We operate more on doctrine than on rigid plans."

Many of the community bankers interviewed gave nods to larger banks that have managed to forge lasting relationships in communities. In most instances, the credit went to experienced branch managers. Others noted that the consolidation of financial institutions and tightening market had brought some of those experienced bankers into the job pool, another boon to community banks.