If you were to judge only by the images on TV over the past few months of banks on the verge of failing or folding – with customers of some institutions waiting nervously in long lines to access their accounts – you might assume that banks on Main Street, like those on Wall Street, are collapsing.

However, we are seeing evidence, including through the in-depth evaluations and due diligence we do of firms that apply for and are honored as Top Small Workplaces, that many local and community banks are not merely surviving in this economic environment, but thriving.

Financial services firms have had strong representation among those of all industries that have applied in the two years that we have sponsored the Top Small Workplaces competition in collaboration with The Wall Street Journal. In 2007, 13 percent of applicants were banks or other financial firms; in 2008, they made up about 5 percent of the applicant pool.

From these, one bank has made the list of 15 winners each of the last two years: Phelps County Bank in Rolla, MO, in 2007 and The Paducah Bank & Trust Company in Paducah, KY, this year. What follows is an assessment that traces the continued growth and profitability of these banks in these tough times to their long-term perspective on business success, their commitment to their communities and their progressive people practices.

Phelps County Bank

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Phelps employee-owners deliver Christmas gifts to local organizations.

Phelps, in rural Missouri (about 100 miles southwest of St. Louis), is a true success story. Founded in 1963, this community bank really began to come into its own in the mid-1980s, after current CEO Bill Marshall joined and helped the then-CEO establish a forward-thinking employee stock ownership plan (ESOP) that would help focus associates on providing great customer service as the company helped them fund their futures. Today, Phelps is proud to say that out of around 8,700 charter U.S. banks, they are one of only two that are 100 percent employee owned.

“Our business is built on trust, and in order to maintain the integrity of ‘trust’ the borrower’s interest must come before ours,” Marshall says. “Our decisions and the analytical process that we use to make lending decisions are first and foremost based on a borrower’s ability to repay the debt. I believe that we have a moral obligation to borrowers, to take our knowledge and experience and assist them in making the right decision. It seems to me that the sub-prime mortgage problem that triggered the current financial crisis was a situation in which ‘common sense’ was outweighed by short-term profit motives on the lender’s side and the desire to upgrade one’s standard of living on the borrower’s side.”

Phelps’ revenue growth and customer retention track record are telling. Phelps increased its revenue by 18 percent from 2005-2007, and while three new banks have been built in Rolla over the past eight years, they’ve maintained a market share of 30 percent for the past five years.

“This year has been tremendous for us,” says Dave McKee, director of sales and marketing. “Deposits are up more than 8 percent for the year, our bond portfolio has doubled since the beginning of the year, our delinquency remains low at around 2 percent and our spread continues to grow and is currently at 4.7 percent.”

They’ve done all this while keeping employee turnover at around 8 percent, far below the industry average of 13.3 percent for 2007, as measured by CompData Surveys. What do they do internally that makes all this possible? All new hires go through an intensive, eight-week training program that covers both compliance issues and on-the-job training with the help of a mentor. They are also big on industry training to spur professional development, working closely with employees to help them match their career objectives to available opportunities. Finally, there are performance-based financial incentives. Since implementing its ESOP, the bank has created at least nine millionaires.

Paducah Bank & Trust

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An owners’ meeting at Paducah Bank & Trust.

When looking at the practices of this 60-year-old, independently-owned provider of trust, banking and investment services, it’s hard to know where the bank ends and the community begins. This is not only part of the firm’s charm, it has enabled it to stay true to its roots and business model as other larger institutions start up in Paducah Bank’s market, Kentucky’s McCracken County, and then typically fail or merge with other entities.

“To give you a sense of our market share, we do 80 percent of the loans in McCracken County,” says Joe Framptom, CEO. “Our core values are serving people, both our employees and the community. Therefore, we need to be familiar with and inspect the assets we loan. We want to build lifelong relationships with our customers. So, we won’t be lending exotic loans that we don’t understand to exotic places. Other banks, mostly 25 percent of the largest banks in the country, have done this, and it’s caused them and their customers undue pain.”

The bank has managed to grow revenues steadily, at roughly 12 percent from 2005-2007, keep employee turnover down to around 10 percent over the same period and increase its market share over the past decade by a whopping 200 percent by using a combination of employee ownership mechanisms, comprehensive on-site cross-training for new hires and supporting off-site development of longer-term employee-owners, and using daily meetings with all 140 of their associates to underscore the personal attention their customers have come to expect and appreciate.

As several of the bank’s associates noted, while the atmosphere at other area banks is often “cold feeling,” the leadership at Paducah Bank strives daily to inject quite the opposite mood at their locations – and it shows in how employees view the work environment and their role in satisfying customers. One branch manager said he has gotten farther in his eight years at Paducah than his previous 12 years at another company. “I know it’s a job,” he said, “but it doesn’t feel like it to me.”