A hat tip to the family-owned bank

Tom Bengtson

While it is difficult to nail down exact numbers, it is safe to say that the number of banks owned by one or two families is declining. The family-owned bank is a venerable niche of the community bank arena. 

Family-owned institutions experience pressures other banks avoid. As the family group grows with generations, fewer of the shareholders retain direct bank involvement. More of the shareholders in these families see their shares as solely an investment. As they weigh the value of their shares against other investment options, they may press the other members of the family to sell. 

Families have to be clever about how they divvy up shares, responsibilities and authority. Nothing breaks up a family quite like two disinterested shareholders deciding to sell while a third shareholder works tirelessly in the bank to build the franchise. Or sometimes a non-owner son or daughter will work for mom and dad in the bank, expecting the parents to eventually transfer an ownership stake to them. If the parents sell (even though this is their right) without addressing the offspring’s expectations, real generational resentment can develop. 

On the other hand, limitations on the shareholder group can prove stifling. Families unwilling to sell shares to non-family investors may have difficulty obtaining more capital. Retained earnings can be a slow way to grow, especially when competition or market expectations demand expensive new technology or branch expansion. And what about dividends? Even if a family agrees on a payout amount, a significant net income change after a long period of even dividend payments sure can liven up discussions at Thanksgiving dinner.

Any family that can navigate all these pressures is special indeed! The particular value of family-owned banks is appreciated by the owners of small- and medium-size businesses everywhere. A family-owned bank is more likely to be able to act according to the long view; next quarter’s earnings don’t dictate every decision. Bankers in family-owned institutions are more likely to value the unique anchoring role they play in their community. Their customers don’t just make up a market, they make up their neighborhood. Character and other factors that wouldn’t sway the chain bank’s decisions, may mean something to a banker who grew up with his or her customers, following in the footsteps of a parent who did the same. 

As banks get bigger and the world gets smaller, the family-owned bank will only grow more distinct. I tip my hat to you.