Bill Zumvorde

Rather than focus on the current regulatory environment, moderators encouraged participating banks to concentrate on today’s unprecedented opportunities for community banks. The primary discussions centered on a couple of themes:  achieving profitable growth and human resource issues.

Achieving Profitable Growth

Most of the banks said they have excess liquidity and are eager to lend. Many report they continue to pick up good customers from larger institutions, but in general, loan demand from quality borrowers is historically weak. To counter this trend, some banks have increased their U.S. Small Business Administration (SBA) lending, though they often originate and sell these loans, adding to their non-interest income. Banks in rural areas reported more success originating U.S. Department of Agriculture (USDA) loans and believe this program’s administration has simplified. These loans are available for non-agricultural purposes, including single family, multifamily and business loans. Click here for more information and eligibility requirements.

Some banks are using the SBA’s America’s Recovery Capital (ARC) Loan Program for loans up to $35,000, but many find it requires rigorous documentation. For more information, click here.

Regarding deposit products, attendees had a lot to say about overdraft protection legislation and the impact on products and fee income. Only a few of the attendees believed the new legislation will have a significant effect on them. The bankers generally agreed banks should identify where fee income is derived—checks, point of sale, ATM, etc. They should educate customers on the details and benefits of different available overdraft programs.

Approximately one-third of participating banks reported using the Certificate of Deposit Account Registry Service^® (CDARS^®) program to build deposits and fully insure customers on deposits greater than $250,000. Other banks reported success with remote deposit capture, particularly when other products and services were marketed to employees of the companies using the remote deposit capture. Other suggestions included letting customers open new accounts online, given proper security measures.

Other means of attracting new customers include mobile banking, free online bill pay and more convenient methods for moving bank accounts, commonly known as “switch kits.” Switch kits can be online and should include forms customers need. Some banks offer to help customers through the process and will even assist them in setting up their new online account.

A number of banks commented they periodically evaluate their product and service offerings to stay competitive as customer demographics continue to change.

A couple of the groups discussed their experiences in providing insurance as a means to expand customer relationships, drive new business to the bank and improve fee income. Some of the options include buying a minority interest in an insurance agency and potentially joining with other banks to create a network of insurance offices. Some state bank associations already have partnerships where banks can easily enter the insurance business.

Human Resources

Attendees also discussed retention and succession planning. Recommendations emphasized early planning to identify and groom potential succession candidates. While banks typically think of chief executive officer succession, it is important to consider other key positions, including the senior lender, chief financial officer and critical information technology and risk management positions.

Regarding retention, many banks reported implementing formal coaching and training programs. Not only has retention improved, but so has overall morale. Some of the strategies are similar to initiatives within BKD's People First program.

The attendees’ general consensus was that competitive products, experienced bankers and a strategic plan will help community banks grow wisely, even during a recession.

For more information on this issue or related matters, please consult your BKD advisor.