The Local Bank: What it is, and the Benefits it Offers

We talk frequently about Central Bank’s status as a local bank, but what exactly does that mean? After all, any given town can play home to a large number of financial institutions. Does every bank achieve the moniker? The short answer, of course, is no — but the longer answer requires a bit of explanation. Read on to learn what distinguishes a financial institution as a community or local bank, and the benefits associated with doing business with one.

What is a Local or Community Bank?
Although there’s no quick and easy definition for what a community bank is, the Federal Deposit Insurance Corporation (FDIC) covers the topic in its 2012 Community Banking Study. There, they describe them as entities that “focus on providing traditional banking services in their local communities. They obtain most of their core deposits locally and make many of their loans to local businesses.” The FDIC goes on to say that such banks tend to be privately owned and overseen by individuals who call that particular community home. They indicate a majority of local banks maintain assets up to $10 billion, although placing a monetary value on such entities become difficult once you consider factors such as inflation.

Why Do Business with a Local Bank?
As with any financial institution, no two local banks are exactly alike. In general, however, the unique approach they take in their day-to-day operations can offer helpful benefits for the clients they serve. Here are just a few ways doing business with a “smaller” financial institution can make a difference.

  • Credit Decisions Based on More than Mere Calculations: Local banks are big on relationships, taking time get to know the people and businesses who bank with them. In addition, decisionmakers behind their loan processes typically live in the same communities as their customers. This means that factors such as local economic conditions, your prior history with the bank and even life events communicated to your lending professional can all come into play when it comes to the decision process. In short, you have more flexibility than with institutions that base such decisions solely on computer-based models.

  • Big Opportunities for Small Businesses: Did you know local banks are behind approximately 60% of all small business loans? (And 80% of agricultural loans, too?) That aforementioned flexibility makes a difference in instances where up-and-coming endeavors can’t meet strict funding requirements, or where extenuating circumstances require an existing business to seek out additional funding.

  • Less Red Tape Across the Board: Because the people behind a local bank’s big decisions are often right there in town, determinations regarding loans and the like tend to come about fairly quickly. Questions aren’t being funneled through a massive chain of command, but are instead passed along to a decisionmaker who could very well be in the same building where your loan discussion took place.

  • Care and Consideration for the Surrounding Community: Yes, a local bank’s employers might be your bank tellers or lenders. More importantly, however, they’re your friends and neighbors. These people call the same neighborhoods home that you do, and as such, they want to take care of them. You’ll regularly find a locally owned bank’s team members taking part in neighborhood volunteer efforts, giving back to worthy causes and making their way out to events that benefit the surrounding town. It’s what being a good neighbor is all about, right?

We hope this write-up shines a bit of light on what exactly a local bank is, and all that it has to offer. If you have questions about any of the above, feel free to contact our team or drop by any of our four Houston branches. As Houston’s longest-serving independent bank, we’re glad to help however we can. We look forward to hearing from you!