Community banks survive with classic strategies
Community banking may be under fire, but it won't die as long as those banks stick to core fundamentals and adjust their business model for a new generation, midstate banking officials said.
As banks face stiffer challenges from increased regulation and financial pressures, it's important to keep their identities intact as they grow with their customers.
"I believe it's critical they remember they are community banks and stick to that model," said Nick DiFrancesco, president and CEO of the Pennsylvania Association of Community Bankers in Harrisburg. "It's all about relationship banking. Any community bank that tries to act like the larger banks is probably going to get lost in the shuffle."
The identity of a community bank is crucial, according to Camp Hill native Terry Jorde, senior executive vice president and chief of staff for the Independent Community Bankers of America in Washington, D.C.
Sticking to that model of being a willing and able investor in the area they serve will be what helps community banks survive.
"Five years ago, you didn't even know what a community bank was," she said. "A bank was a bank was a bank. Now, people are interested in knowing which banks are based in the communities they serve."
The common definition of a community bank is one with less than $1 billion in managed assets. There are about 7,000 banks in the country that fall into that category, according to Jorde.
That's down from almost 17,500 in 1985, according to Federal Deposit Insurance Corp. records. When the Bank of Bird-in-Hand opened in Lancaster County in November, it was the first startup bank charter the FDIC approved in the country in three years.
However, the FDIC also acknowledged in a 2012 study that simply basing the definition on the amount of managed assets might not be the most effective way, as it doesn't take into account industry growth or other community bank attributes.
PeoplesBank in York County considers itself a community bank — even though its assets top $1 billion. While there is no definition of a community bank, experts agree they serve a specific community or area, have local ownership and don't move too far out of that area.
"(Community banks are) different," said Michael Allen, vice president and chief operating officer at Codorus Valley Bancorp., the holding company for PeoplesBank. "I think regulators are starting to realize that now."
But those same regulators are the ones putting forth standards that are "killing us," DiFrancesco said.
He said community banks are hiring, but the jobs mostly are compliance officers for federal standards handed down in the Dodd–Frank Wall Street Reform and Consumer Protection Act of 2010.
"(The hires) are not creating new business, they're there to cross the T's and dot the I's," he said. "That increases the cost of doing business for community banks."
DiFrancesco specifically pointed to the new qualified mortgage regulations that went into effect Jan. 10 that shift the liability of a bad mortgage from the person receiving the loan to the lending company.
"The qualified mortgage rules are deadly," he said. "It's going to force banks to pull back from issuing mortgages. If (the government) would just back off community banks and let us do our thing, it would create a better economic environment."
One common perception of community banks — that they are the banks of choice for small businesses — is starting to come under fire. According to a Board of Governors of the Federal Reserve System report in December that used historical data, small businesses are not more likely to choose community banks as their main bank.
Community banks are breaking their own reputations as well in a good way since they're often accused of not being technologically advanced. Jorde cited an ICBA survey released in November that said 37 percent of the country's community banks offer mobile banking and another 43 percent intend to offer it by 2015.
Allen said there are vendors now that offer community banks online banking capabilities at reasonable prices to cut down on the expense that would keep a smaller bank from investing in new technologies.
Jonestown Bank and Trust Co. in Lebanon County, which handles about $420 million in assets according to FDIC records, started offering text and mobile banking in the last year, and it has been training its employees to be ready for more technical questions when a customer visits a branch.
"We certainly don't expect (community banking) to go away," said Ed Martel, senior vice president of sales, marketing and branch administration at Jonestown. "While new technology is going to come up, people will always need to be able to walk into their local branch and have a smiling face and the knowledge to help you."