EASTON T. Sewell Hubbert paid his final visit to the Bank of the Eastern Shore last week as the Cambridge financial institution shut its doors for the last time. As board of directors secretary and a founding investor in the bank, Hubbert had the kind of relationship with the employees and the members of the surrounding community that is almost exclusive to community banks.

Hubbert said he and the other founding investors started the bank 27 years ago because they shared an underlying frustration with the larger banks' propensity to invest local money nationally and abroad, he said.

"We opened the bank for the community," he said. "We tried to keep the money in the community."

From Hubbert's perspective, the bank was a victim of the disconnect between regulatory expectations of how banks ought to run and what the Bank of the Eastern Shore leadership saw as its civic duty to keep borrowers in their homes. It was a disagreement, in retrospect, the bank was doomed to lose.

"We fought them for three years," Hubbert said of the multiple regulatory fiats and inquiries with which he and the other investors dealt.

Walking the line between meeting regulatory demands and civic responsibilities is a charge particular to community banks and one they take seriously.

"I used to spend 10 to 15 percent of my time dealing with regulatory issues," said Mike Menzies, president and CEO of Easton Bank and Trust. "Now I spend more than 50 percent of my time dealing with regulatory issues."

After the financial crisis, when large national and multi-national banks were declared "too big to fail," additional banking regulations were proposed as an additional failsafe against banks' unsafe investment practices.

But as F. Winfield Trice, president and CEO of Centreville National Bank, points out, community banks always have had a mechanism for preventing unsafe investments: their personal ties to the area.

"Community banks, more so than regional banks, serve the small business community to a much larger extent," he said. "Small businesses look to community banks to bring job creation."

Because of their close ties to the small business community, as well as to their mortgagees and depositors, community banks are hyper-sensitive to movements in the local economy. Moreover, the people who make up local boards of directors tend to be members of the local business community who understand the importance of their role in protecting and fostering the local economy.

Community banks have insights into local economies that are not available to analysts outside of them. They are wired into the entire area, not just its purely financial aspect. Executives and bank boards of directors also are engaged members of the business community, forming a kind of circle wherein the community's economic interests and the bank's are interdependent.

"It extends not just to small business," said Christy Wilkins, vice president of Queenstown Bank of Maryland. "It extends out into the community."

By assuming a leadership role both in the financial and civic life of the areas they serve, community banks tie themselves to the local economy's success much tighter than to the stock market.

Laura Heikes is vice president of operations for Shore Bancshares, which includes The Talbot Bank of Easton and CNB. She said taking community social investment seriously is as critical a part of their company mission as is the financial responsibility. In fact, they see them as interdependent.

"We have a very active board of directors," she said. "And it's very important to all of us that we give back."

Giving back includes a significant list of civic-minded philanthropy and volunteerism but additionally, she said, they are involved heavily in helping improve financial literacy in the community.

From participating in the Junior Achievement program to running workshops teaching senior citizens how to detect fraud, Heikes said heightening financial literacy strengthens both the community and the bank.

As the economy begins to loosen, Menzies said, community banks are well positioned to be leaders in the recovery, which some say will be more locally diverse.

"Community banks are agile," he said. "They have the competitive advantage in that they can move quickly."

Small banks were given, if not additional protections, additional advantages by some of the bank overhaul legislation. Among them was the FDIC increase covering depositors for up to $250,000. This makes community banks a desirable option for wealthier depositors, giving the banks more capital to help in the local recovery.

Although about 50 large banks control about 80 percent of the market, according to Menzies, most of the 7,300 nationwide banks are small, community banks. These banks are the institutions providing the dominant number of small business loans.

Helping small business finance expansion is possibly the most important part they can play in the recovery, and all the bankers interviewed agreed it is a role they are ready to assume. For now, it is all a matter of increasing consumer confidence. As Trice pointed out, it isn't as if the banks don't have significant amounts to lend. He flatly denied the assertion that there is a credit crunch preventing banks from loaning money. The myth is becoming a pet peeve of his.

"To make a loan, you have to have a loan applicant," he said. "The banks are flush with money; the lack of certainty in the climate is something that concerns people in these small businesses."

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