Leading the way for community banks

Kings have taken turns at helm of Montana Independent Bankers Association

It's the King family way - tending to the ledger's bottom line and the community's fiscal well-being.

When Valley Bank co-founder Jack King's grandparents settled in the Flathead Valley back in the 19th century, Kalispell wasn't even a town.

His grandfather Eugene Steele was the first superintendent and principal of Flathead County High School. His parents were in its first graduating class. His great-grandchildren now are in the same school system.

Connections with their neighbors run deep.

They care about what happens to them.

As community bankers by profession, perhaps that's the way they are best qualified to offer a helping hand to those neighbors - by doing what they can to bring stability to local families' financial pictures.

Jack King had that vision quite a while back.

Forty years ago, he and a half-dozen colleagues shored up their chances of succeeding at it by forming a state association to help similar independent-banking families across Montana carry out similar dreams.

Last weekend, Montana Independent Bankers Association launched into its fifth decade at its annual convention in Kalispell.

The convention marked the end of A.J. King's presidency, the third King family member to take the helm of the statewide group.

Jack and his sons John and A.J., both at Three Rivers Bank as president and executive vice president, respectively, led Montana Independent Bankers on its march to what is now 30 members - and growing. Jack served in 1973-74, John in 1999-2000 and A.J. in 2007-08.

It was not the first bankers' group in the state - the Montana Bankers Association had been in place since 1904.

But Montana Independent Bankers was the first one specifically dedicated to independent community bankers, those who keep the money in the communities where they live and do business.

Other local banks, King explained, often are set up as branches of larger corporations and may channel revenues away from the local community and into major money centers.

That's not what Jack wanted to support.

"With home ownership," he said, "your neighbors run the banks. You live next to the guy who runs the bank. And he'd better take care of you, because he doesn't have anyone else to take care of."

Montana Independent Bankers is part of the Independent Community Bankers of America, which claims 5,000 members out of 7,500 total banking entities across the nation, King said. It provides members with products and services they could not carry alone, things such as credit cards, mortgage packages, securities, legislative research and lobbying.

Jack took the first step into banking when he and Jack Hensley, in February 1962, bought the old State Bank of Somers charter. In 1964 they moved it to Kalispell and changed the name to Valley Bank.

Jack King wanted to broaden for the future, so in 1974 he opened a second bank, First Security Bank of Kalispell.

Until then, John had been working with other banks but returned in 1986 to start as a loan officer for First Security. He gradually moved up to president in 1996 and holds that position today from his office at the Idaho Street branch.

His brother A.J. started as a teller for Valley Bank in 1986 and stayed there for 12 years until First Security hired him as a senior vice president in June 1997.

Two years later they changed the name to Three Rivers Bank and opened the Meridian Road branch, where he's now executive vice president.

Now Jack has stepped down from Valley Bank president to become executive vice president, and has handed over the president's desk to his grandson, Ron Rosenberg. Jack still chairs the Three Rivers board of directors.

There's some duplicated ownership between Valley and Three Rivers and they operate under the same principles, but they remain independent of each other. Both banks list $100 million in assets and are capitalized at more than 10 percent, well above the 8 percent required minimum.

They talk freely of the bonuses and challenges in independent community banking.

Decisions are made quickly by a board of directors who live in and understand the area, A.J. said. Rather than draining off money, "we're helping the community," he said.

That local focus, and locally financed mortgages, helped them weather the housing crisis.

"We didn't need that business" of selling mortgages to out-of-state investors, John said. "We do our business across the desk. We don't sell our loans out on the market."

"If we had to manage debt" that rises from selling loans, Jack said, "we'd turn our focus to that and away from our customers."

For now, he wants to keep the focus here where they understand local families and avoid branching to new areas.

"What better community to do business and live in?" Jack asked.

On the flip side, they keep their eyes on threats to bankers like themselves.

Independent community banks face some tough challenges from such commercial giants as Wal-Mart and The Home Depot, Jack said.

Those corporations are threading their way through legal loopholes that would allow them to be designated Industrial Loan Companies so they could open branch banks in their retail locations across the country.

They're looking for the cash flow from deposits rather than the outflow to loans and other services, Jack said, and probably wouldn't hesitate to slam the doors shut on any branch that suddenly becomes unprofitable.

Independent bankers must lobby to close those loopholes in finance law by Jan. 31, 2009, he said, or risk the downfall of local banks.

Regulatory burdens are a heavy threat, too, John said.

"They [banking regulators] don't care whether we take care of our customers," he said. "They care if we're compliant" with banking law.

Corporate banking officials are university-trained to follow finance theory, not tempered by rising through the ranks and working with individual customers and families, he said.

Predatory pricing of "non-bank banks" such as mortgage companies also is a threat, he said. Since they are not full-fledged banks, they operate under more lenient regulatory standards and can turn an easier profit.

On another front, independent banks lack access to huge pools of operating cash available to large corporations in the banking industry.

"In 2007 only one out of the country's 15 big banks didn't make money," John said, shedding a different light on the nation's perceived banking crisis. "That was CitiCorp, and they borrowed money to protect their stock value.

"But we can't do that. We can't go out and borrow if we're in trouble." Only the Federal Deposit Insurance Corporation backs up small banks, and it is apt to close them if trouble comes along. "They won't do that on too-big-to-fail banks."

Credit unions, too, can out-compete independent community banks because they pay no taxes on their revenues.

"By them not paying taxes," John said, "it's not a level playing field" when banks go into direct competition with credit unions.

Dollar-for-dollar competition is tough, Jack added, "but we can compete on service - and that's the only place we have left to go."

As the outgoing president of Montana Independent Bankers, A.J. remains on the state board where he will continue fighting battles against these challenges. He's encouraged that more small bankers are recognizing the advantage in that collective power.

"We're growing," A.J. said. "We picked up seven members in the last two years."

They are persuaded by the association's education programs - both online and over the phone - to train bank directors and employees, the lobbying efforts for government policy, the networking opportunities, and the services and products offered through the sister organization called Community Bankers of Montana.

He lamented that First Interstate recently pulled its CashCard network away from Montana Independent Bankers, taking with it a healthy revenue stream.

"But we still operated in the black," he said.

And the association is exploring its options for replacing that revenue.

It's an important search, one that may determine whether small banks retain quality representation in the financing arena.

"There is a difference between smaller community banks and the big banks," A.J. said.

He and the rest of the King family have no intention of giving up the fight to keep the proud identity of small, homegrown institutions in independent community banking.

Reporter Nancy Kimball can be reached at 758-4483 or by e-mail at nkimball@dailyinterlake.com