Here and Now: The Best of Times for Community Banking

[ILLUSTRATION OMITTED] I'm more optimistic about community banking than I've ever been before. Community banks are the life's blood of many small towns. They foster deep community roots and fund an astonishing 58 percent of all small business loans made by banks. Yet, because their lack of publicity, there's a perception that they are insignificant and on track toward obsolescence. In fact, community banks remain a true reflection of their communities. They provide the job-creating, income-producing capital that allows local communities and, frankly, the spirit of America to thrive. Banks today face an uphill battle: heavy-handed regulations, reduced loan demand and chronically low interest rates. When your main business is risk, nothing comes easy. So with all these headwinds, why do I consider it the of times for banking? We're at a unique moment, with shifts in technology, growth opportunities and cultural changes that are coming together to create a golden opportunity for all but the largest banks--if we're willing to seize the opportunity. Leveraging technology Fortunately for community banks, when it comes to technology, the tide is turning. Technology is getting better, faster and, most important, cheaper. For the first time in 50 years, small banks can lead in technology adoption. In the past, large banks led the way by being first with the ATM, first with phone banking, first with Internet banking and first with mobile banking. Now smaller banks are launching new technology far faster than large banks. As technology costs plummet, local banks are finding they have the resources to go toe-to-toe with the big guys. Today, nearly every neighborhood bank can afford to offer the same technologies as their national counterparts. To be sure, large banks made the initial investments to develop, test and validate the demand for new technology. Community banks are now adding the same technologies at a fraction of the earlier cost and updating them faster than the large banks, which have enormous costs sunk in legacy systems. Technology is a proven way to increase customer loyalty and reduce overhead, not to mention enhance business development. It wasn't long ago that big banks averaged 6.5 products per customer, while community banks averaged 1.75. Today, that spread is thinning, with technology serving as a primary driver. Now community banks can offer the same services and cross-sell deeper into the product spectrum just like their larger peers. Capital raising and growth opportunities The ability to raise capital is becoming even more crucial for banks to survive and thrive. More capital equals more growth. For every new loan, a bank needs 8-10 percent capital to fund that loan. Raising capital in some areas is easy, but moving forward after the financial crisis, it's more common for capital raising to be a challenging exercise for community banks. Building scale while capturing synergies and entering new markets is in everyone's best interest, but additional regulatory capital is required to execute on those opportunities. A large majority of community banks aren't able to raise capital by conducting public market offerings; for many, the public capital markets are not open due to their size or present limited upside for an equity investor. For more than 80 percent of American banks (about 5,500 banks), the capital markets are simply not an option. Raising capital requires strategic thinking, serious consideration of regulatory attitudes and regulatory changes--and an honest assessment of your bank's financial condition, business plan and prospects. …