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Pastors are called upon daily to perform a wide variety of tasks, including counseling, ministry to the sick and bereaved, personal witnessing, and serving as chief administrator of the church.

In fulfilling their many leadership roles, pastors often overlook the importance of planning for their church's present and future financial needs. A critical part of that process is developing a strong relationship with a banker who understands the unique needs of pastors and their churches.

If a pastor is to effectively assess and plan for his church's future financing, he should work hard to establish and cultivate a comfortable relationship with a trusted banker. Consistent communication and sound record keeping can facilitate a banker's understanding of a church's financial needs.

A church's financial requirements go far beyond the purchase of a church bus, a computer, or even a new building. A banker who is sensitive to the unique needs of churches can be a trusted advisor to a pastor.

This article attempts to help current and future pastors understand the importance of a sound banking relationship and how to identify the institution that will best meet a church's needs. Additionally, it discusses the related topics of church financial planning and issues in financing a major purchase, such as land or a building.

Brief Overview of a Church's Banking Choices

Major Types of Depository Financial Institutions
Deciding on a financial institution that can best serve his church is often a confusing one for a pastor. The following is a brief discussion of the major types of depository financial institutions:

1. Commercial Banks
Usually considered the "department store" of financial services, commercial banks make consumer, business and real-estate loans, take all types of deposits, and offer other ancillary services, such as safe deposit boxes, selling travelers' checks, etc.

2. Savings and Loan Associations
These institutions are technically not banks. They specialize in making mortgage loans and taking consumer savings deposits.

3. Mutual Savings Banks
Located mostly in the New England area and in New York, these savings banks are very much like savings and loans, except that they are "mutuals." In other words, they are owned by their depositors, rather than by shareholders.

4. Credit Unions
Although credit unions outnumber commercial banks and savings and loans, they are generally small institutions and are designed to serve some group of "members" who have something in common. They generally make small consumer loans and take deposits from individuals.

Understanding the Difference Between a Multibank Holding Company, A Community Bank, and a Branch Bank
Distinguishing between commercial banks and the other major financial institutions may not clarify all the banking choices that churches have. Among commercial banks, a pastor may develop relationships with a bank owned by a multibank holding company, an independent community bank, or a branch of a larger bank.

1. A multibank holding company (MBHC) is an organization that owns more than one bank. Many MBHC's are very large and based outside the local area.
2. A community bank is independently owned, often by investors in the local community. Thus, it operates without the influence of a large holding company and is typically in closer contact with the local business climate.
3. Most states allow banks to operate a number of branches, which make banking services more convenient to customers. These branches may have a lending staff, but are typically limited in the types of services they provide.

Multibank holding company banks often draw their personnel and capital from outside the local area. This may be a benefit if the community where the church is located is very small or if the local community banks are unsophisticated in regard to church lending. Branch banks are simply extensions of a MBHC bank or a community bank, and many offer only basic payment and deposit services.

Churches often receive the most benefit from a banking relationship with a commercial bank that is in touch with the needs of the local community; that is, an independent community bank. This type of relationship gives a pastor the opportunity to deal with a lending officer who has a higher level of authority and influence in the bank. Also, lending decisions are made in the local bank, which can be of advantage to the church.

A Word About State vs. National Banks And Deposit Insurance
When a bank is established, it may apply for its charter at the state or the national level. There is no significant difference between the operations of a state bank and a national bank, other than the fact that different agencies are responsible for the regulation of the two kinds of banks.

Thus, from the customers' perspective, there is no difference in the level of loan or deposit service available from a state-chartered versus a nationally-chartered bank.

Churches should do business with institutions whose deposits are insured by the Federal Deposit Insurance Corporation (FDIC). The FDIC is an agency of the federal government which insures deposits up to $100,000 for all banks that pay insurance premiums. Because over 95 percent of all banks have deposit insurance, most depositors have no concerns about the safety of their deposits of $100,000 or less.

Which Banking Officers Can Provide the Services Needed?
Most banking organizations are divided into two major departments: lending and operations. Banks cannot stay in business without lending their deposits. Thus they employ a lending staff with expertise in locating and evaluating potential loan customers.

Within the lending department, most banks distinguish between business (commercial) lenders and personal (consumer) lenders. If a pastor develops a strong relationship with a commercial lending officer on behalf of his church, that officer can usually also help with any small personal loans the pastor may need.

A bank's operations department consists of all services other than lending, as well as the many administrative support staff needed to comply with internal accounting and regulatory requirements. New accounts personnel, tellers, and customer-service representatives are included in the "operations side" of a bank.

A pastor should develop a good relationship with a commercial lending officer who has the competence and the authority to service the pastor's needs. In smaller banks, the president often serves as a lending officer to some customers.

Source: Pastoral Manual
by Gary L. Tipton President and CEO, Inwood National Bank of Dallas.
Excerpt permission granted by Faith Library Publications