Community Reinvestment is a way of life, not a law, says small town bank

David Fettig | Editor

Published July 1, 1993  | July 1993 issue

For Root River State Bank of Chatfield, Minn., like other small-town banks, community involvement takes many shapes:

  • At virtually any social function in Chatfield, right next to the coffee pot or at the end of a buffet line, are a pile of napkins emblazoned with "Root River State Bank."
  • During June, a man from a nearby boarding house routinely comes to enjoy cookies and milk in the afternoon (sponsored by the bank in recognition of national dairy month and the local dairy industry), and promptly takes a nap on the bank's lobby couch.
  • One day in early June, Charles Johnson Jr., executive vice president of Root River State Bank, distributed personalized key chains to graduates at the local high school. Later that day, he spoke briefly with a group of touring first-graders, addressing the teachers and some of the students by name.

What does all that have to do with the Community Reinvestment Act, the 1977 law meant to spur lending to all sectors of a community? At first glance, nothing. Supplying napkins and serving milk won't garner a high CRA rating from federal examiners, but bank executives and Chatfield residents use those examples to underscore what small-town banks have been claiming for years: That involvement in a community and knowledge of its residents are synonymous with small-town banking.

"The bank does not succeed in a community such as this if we're not doing these things anyway," Root River State Bank's Johnson says about CRA's requirements to prove that the bank is involved in the community and, hence, aware of Chatfield's credit needs.

To document such proof, Johnson and the bank's 16 employees save newspaper clippings, brochures, advertisements, church bulletins, correspondence and any other evidence of their participation in civic affairs. Also, Johnson has each employee keep a CRA diary in which they record every meeting, luncheon speech or volunteer activity that may have any bearing on CRA. Those diaries are then presented to examiners along with the other evidence of a bank's community outreach.

"I know it's an examiner's job," Johnson says about the CRA requirements. "But when an examiner asks for proof, I'm almost offended." However, he concedes: "You've got to play the game, and if you don't you get burned. So we document."

One difference between pre- and post-CRA banking for a small-town bank like Root River, Johnson says, is that now the bank must dedicate an employee to regulatory compliance. At Root River, that employee is Lynden Dirksen, assistant vice president, who also manages the bank's operations and data processing.

"We had CRA before it was ever enacted," says Dirksen, who has worked at Root River for 15 years and says he knows about 80 percent of the bank's customers by sight.

He's also become familiar with the bank's examiners. "We've never had any knock-down, drag-out fights," Dirksen says of the compliance exams, because he says the bank is always prepared. "If we weren't prepared, [the exam] would be a dreaded event."

As part of their effort to determine a bank's CRA compliance, bank examiners visit with members of the community. One Chatfield resident, the local druggist David Stemp, says the bank has had an important relationship with Main Street retailers over the years. Stemp would know, he has run Chatfield's local drug store for 25 years, and it has been in the family for over 100 years. Recently, the bank participated in financing a major renovation of Chatfield's Main Street.

Stemp says Charles Johnson Jr., and his father, Charles Sr., are participants in nearly every civic committee or town project. Charles Sr. is president of the $45 million asset Root River State Bank, as well as president of Johnson Bancshares, a bank holding company that owns Root River. Charles Sr. is also president of the First State Bank in nearby Fountain. The Fountain bank, with $26 million in assets, was established by Charles Sr.'s father in 1901.

Chatfield's two largest manufacturers, Tuohy Furniture and AFC Manufacturing, both employ about 150 workers, and while they may have outgrown Root River for certain financial services, both companies still do some of their banking locally, according to Dan Hollerman, quality control expert at Tuohy.

Hollerman says it is important for a small town like Chatfield to have a local source of credit. For example, he says that the bank—through a cooperative effort with other independent banks—is arranging to provide home financing to Chatfield residents that it would otherwise be unable to provide. He knows about the program, Hollerman says, because he may be looking for a loan himself.

And Faye Wiskow, business owner, former city council member and lifelong resident of Chatfield, credits the bank's involvement in city government and school affairs. She also says Root River State Bank's connection to Fountain may pay dividends to Chatfield in the form of tourist dollars. The popularity of a major bicycle trail at Fountain has already meant some spillover into Chatfield, but a proposed extension of the trail to Chatfield is expected to create a minor explosion in the local tourist industry.

At the regular board meetings of the First State Bank in Fountain, there is usually at least one loan proposal relating to the bike trail says Charles Jr., whose father is an avid bicycler and promoter of the Fountain trail system. Loans for retail shops, restaurants, bike-related services, and bed and breakfasts are the most common requests, according to Charles Jr.

Wiskow, Stemp and Hollerman all hope that an extension of the bike trail would encourage the opening of a motel in Chatfield. Currently, says Hollerman, if Tuohy Furniture has to house business associates, it must do so in nearby Rochester or in other neighboring towns.

In the end, the three Chatfield residents say that Root River State Bank's involvement in the community is done quietly, like other civic-minded businesses in town. "We all know what they do," Hollerman says.

Which brings up a somewhat galling point for Charles Johnson Jr. He says that CRA's requirements to document the bank's activity is against his nature. "It's like tooting our own horn. I'd rather work quietly, knowing that we're doing our job." Instead of considering the merits of a particular civic project or volunteer effort and deciding independently whether he or the bank should get involved, Johnson says that CRA is always in the back of his mind, sometimes influencing his decision.

Lifting the bulging manila file before him, he says: "The whole idea of this file is self-justification, and I have a problem with that."