The Federal Reserve and the Conference of State Bank Supervisors today released the findings from the 2017 National Survey of Community Banks. Survey responses were obtained from 611 community bankers in 37 states, and provide insights into what community bankers are thinking about key issues facing their industry. The survey questions addressed changes in bank lines of business, regulatory compliance, competition and consolidation. The 2017 survey also asked specific questions about small business lending and challenges and opportunities posed by financial technology firms.
On October 23, 2017 the FDIC Chairman, Martin J Gruenberg, spoke at the “Day With the Secretary” Event hosted by the Illinois Department of Financial and Professional Regulation’s Division of Banking and the Conference of State Bank Supervisors in Springfield, IL.
Mr. Gruenberg began by stating, “Community banks have always carried out the banking core functions: gathering core deposits and making loans to individuals and small businesses. But unlike larger noncommunity banks, community banks have the local focus to give the detailed attention critical to the small business sector.”
We have extrapolated some of the most important statements of the chairman’s remarks below.
“…traditional community banks remain vitally important to our financial system and our economy.”
“Community banks hold 43 percent of all small loans to businesses and farms in the United States – more than three times their 13 percent share of industry assets.”
“The median age of community banks is 94 years, compared to 39 years for noncommunity banks.”
“…the median asset size of community banks has more than quadrupled since 1985, from $40 million to more than $170 million.”
“Amid all of the institutional and technological changes we have seen during the past 30 years, community banks remain the single-most important source of credit for small businesses and of banking services in general to non-metro areas.“
“Despite the rise of new competitors and the long-term consolidation in banking, no single competitor has emerged that can replicate or replace the mix of services that community banks provide.”
Total loans and leases held by community banks have grown by more than 8 percent in each of the past three years — extending to many segments of the loan portfolio. This growth has exceeded the pace of nominal growth in the U.S. economy.
In each of the past four years, community bank loans have grown faster than loans held at noncommunity banks in: 1- to 4-family mortgages, commercial real estate loans, and commercial and industrial loans.
In each of the past three years, annual growth in community bank net income has equaled or exceeded growth at noncommunity banks.
Net interest income is the foundation of community bank profitability. It has traditionally accounted for around 80 percent of net operating income for community banks, versus two-thirds at noncommunity banks. But the net interest margin for community banks today is lower than it was prior to the crisis. This decline in net interest margin has progressed over time as the period of zero or near zero interest rates has persisted. It far exceeds any other factor in holding back a full recovery in community bank profitability in the post-crisis period. No other factor comes close.
While community banks largely have recovered from the crisis and are exhibiting solid financial performance, there are challenges ahead. Among the more important challenges are: (1) The costs of regulatory compliance; (2) Responding effectively to changes in information technology; and (3) Managing succession planning and recruitment.
The federal banking agencies are currently following through on burden-reduction commitments made in the FDIC’s report to Congress earlier this year pursuant to the Economic Growth and Regulatory Paperwork Reduction Act. These actions include expanding the asset threshold for eligibility for the 18-month examination cycle, reducing the content required in quarterly Call Reports, increasing appraisal thresholds, and simplifying small bank capital rules. We have already taken steps in each of these areas to reduce burden, and we are working to do more.
Their role is inextricably connected to the small business sector where most new jobs are created. And community banks have been essential in providing banking services to local communities that often are not served by larger banks or non-bank financial institutions.
The strong post-crisis performance of community banks underscores their vitality and the critically important role that they play and will continue to play in the financial system and economy of the United States.
You may read the entire speech here: The Importance of Community Banks to the U.S. Financial System and Economy
The House of Representatives passed the Financial CHOICE (Creating Hope and Opportunity for Investors, Consumers, and Entrepreneurs) Act Thursday, a bill that significantly chips away at about 40 provisions and regulations put in place via Dodd-Frank during the Obama-era.
When the Dodd-Frank Act was enacted, it was sold to the American people as a solution to the financial crisis that would hold Wall Street banks and bad actors in the financial services arena accountable.
In the years since its enactment, however, big banks have grown larger, and small banks and credit unions across the country have suffered. In fact, community financial institutions are disappearing at an average rate of one per day (1,600+ which have either closed or been forced to merge since the implementation of Dodd-Frank). This is because the large Wall Street banks are the only ones with the manpower and resources to navigate the complex Dodd-Frank regulatory environment.
The Financial CHOICE Act, provides desperately needed relief to community financial institutions from the harmful, complex and excessive regulatory environment created by the Dodd-Frank Act. It increases access to, and reduces the cost of, credit for families that want to purchase a home or start a business.
Regulatory relief would alleviate the burdens on lending to small businesses, which account for 70 percent of all new jobs created in the US.
When institutions begin to flourish and thrive again, lower-income and middle-class consumers, as well as small businesses, that rely on the services of community banks will once again have more choices and better access to the products and services they need to live their daily lives and conduct their businesses.
The legislation passed the House by a vote of 233 to 186. CHOICE would end Dodd-Frank’s too-big-to-fail bailouts for financial firms and creditors, deliver stronger consumer-fraud protections for all Americans, and provide much-needed regulatory relief to community banks and other small financial institutions. The CHOICE Act will be sent to the Senate next, where the path to approval could prove more difficult.
President Trump met with the top leadership of the Independent Community Bankers of America on Monday, including more than 100 of its members.
The meeting was requested by the president, according to Cam Fine, the president and CEO of the Independent Community Bankers; and, Vice President Mike Pence was also in attendance.
“ICBA is deeply honored that the White House reached out to ICBA and invited more than 100 of our ICBA community bank leaders to meet with President Trump during our annual Capital Summit,” Fine said in a press release. The ICBA discussed issues that are top of mind for our nation’s more than 5,800 community banks—including regulatory reflief.
While Trump has met with small groups of bankers before, this is by far his largest gathering with community bankers. Since taking office, he has repeatedly sought to reassure them that he is committed to regulatory relief. He signed an executive order requiring Treasury Secretary Steven Mnuchin to examine what can be done to provide help to institutions as part of a review of the Dodd-Frank Act.
Community banks are the backbone of small business in america! – President Trump
Trump also met with a smaller group of community bankers in March. Participants in that meeting came away impressed, saying the president repeatedly asked his advisers if he could fix problems in the system by issuing new executive orders (many of the problems bankers brought to him either required legislation or action by an independent regulator).
Community bankers are hopeful for the passage of regulatory relief this year, though the outlook for sweeping legislation is poor.
While House Financial Services Committee Chairman Jeb Hensarling is expected to see his relief bill pass the panel on Tuesday, the legislation stands little chance in the Senate. Democrats broadly support providing relief to community bankers, but are opposed to many of the Hensarling bill’s provisions, including its restructuring of the Consumer Financial Protection Bureau.
Senate Banking Committee Chairman Mike Crapo, R-Idaho, has said passage of a broad relief bill is unlikely, but he is working with Democrats on targeted bipartisan legislation. Hensarling and Mnuchin are expected to appear at the ICBA’s Capital Summit this week.
FDIC Launches New Network to Support Youth Savings Programs
The Federal Deposit Insurance Corporation (FDIC) today released of a report on its Youth Savings Pilot program at a meeting of its Community Banking Advisory Committee. The pilot program identifies promising approaches to combining financial education with the opening of safe, low-cost savings accounts for school-aged children. Financial education and school-based savings programs introduce young people to financial concepts and services at an early age, and promote savings habits at a formative age.
The report from the FDIC’s two-year Youth Savings Pilot is based on the experiences of 21 diverse participating banks. The report describes promising practices banks can use to develop or expand their own youth savings programs.
“Offering financial education to school-age children opens the door to many opportunities and establishes the groundwork for a lifelong banking relationship,” FDIC Chairman Martin J. Gruenberg said. “Coupling that education with the opportunity to open a savings account allows students to put their knowledge to work immediately and makes education efforts considerably more effective.This is a long-term benefit for young people, their families, and financial institutions.”
The FDIC is launching a Youth Banking Network, a platform to support banks as they work with school and nonprofit partners to create and expand youth savings programs. The FDIC will offer periodic conference calls and resources on topics of interest to network members. The FDIC will seek feedback from network participants on ways to support collaborations. Educators and non-profit organizations also are welcome to sign up to receive updates, including alerts about when resource materials are posted. To review the report or learn about joining the Youth Banking Network, visit the new Youth Banking resource center at www.fdic.gov/youthsavings.
The FDIC Quarterly released today includes a feature article that highlights key findings from the 2016 Summary of Deposits (SOD) survey.
Banks Attract More Deposits While Operating Fewer Offices—Deposits across the banking industry grew while the number of offices shrank among noncommunity banks and increased among community banks from the previous year, according to an analysis of data from the 2016 Summary of Deposits (SOD) survey. The survey collects data about offices and deposits from all FDIC-insured institutions as of June 30 each year. The number of FDIC-insured institutions totaled 6,058 on June 30, 2016, down from 6,348 the previous year. FDIC-insured institutions reduced their total number of offices by 1.5 percent to 91,851 for the year ending June 30, 2016. While the number of retail offices and brick-and-mortar offices fell, the number of home banking offices and trust offices increased, and the number of institutions with offices in multiple states increased from 688 to 703. Total deposits at FDIC-insured institutions increased 5.8 percent to $11.2 trillion. Offices in energy-dependent counties reported almost no deposit growth as natural gas, oil, and coal prices fell, but deposits in those offices have stabilized from the 7.1 percent decrease noted in the 2015 SOD. Total noncommunity bank deposits increased 6.1 percent ($543.5 billion), with more than three-quarters of noncommunity banks reporting an annual increase. Community bank deposits increased 5.8 percent ($95.3 billion), with more than two-thirds of community banks reporting an annual increase.
This issue of the FDIC Quarterly also includes fourth quarter 2016 industry results from the Quarterly Banking Profile, which was released on February 28, 2017.
The American Bankers Association (ABA) has issued a whitepaper discussing some of the most burdensome issues that community banks will face as a result of the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank Act). The ABA acknowledges that the amount of regulation is a significant challenge for a bank of any size, but is overwhelming for community banks with limited resources.
The ABA says that five of the most cumbersome provisions of the Dodd-Frank Act for community banks are:
- Risk Retention.
- Higher Capital Requirements and Narrower Qualifications for Capital.
- SEC’s Municipal Advisors Rule.
- Derivative Rules.
- Doubling Size of the Deposit.
Read the whitepaper here
Just as locally kept businesses differ from national conglomerates, community banks are inherently different from the big banks. We, local businesses, depend on relationships more than volume. We know our customers by name and we make banking and lending decisions down the street from where our customers live and work, not from across the country.
Even in today’s quick-fix world motivated by technology advancements, many bank customers still seek out old-fashioned customer service. Indeed, more than half of consumers prefer to interact with their bank in person, according to a report from TimeTrade. This is great news for community banks, where emphasis on customer service in the branch comes first, including promoting quality over quantity in product offerings.
Read the entire article here
American Banker recently published a slide show on five ancillary business lines that lately have appealed to community banks pursuing new sources of loans or fee income. The five are:
- Equipment Finance
- Public Finance
- Insurance-Premium Finance
- Senior Care Construction Loans
- SBA Lending
View the slideshow here