A study released March 31 by the University of New Orleans shows that despite having such a good year in 2014, community banks are dropping like flies all over the United States. The study, titled “National and Regional Trends in Community Banking,” shows that between 1993 and 2014, the number of community banks in the U.S. has dropped by a little more than half, going from 12,490 down to 5,830. That equals 6,660 community banking casualties — small town banks that either went belly-up or were acquired by a bigger player. The study shows the drop has been slightly less severe in Louisiana, going from 251 in 1993 to 130 by the end of 2014 — a decrease of 48.2 percent over the last 22 years.
The trend is no doubt alarming, as noted by the UNO researchers:
Community banks serve an important economic function. Therefore, the decline in the number of community banking operations in the United States is of particular concern. Community banks serve an important role in servicing the needs of rural customers and small businesses.
For Tri-Parish Bank, which is headquartered in Eunice, that role entails everything from sponsoring the local high school’s football stadium to involvement in the city’s chamber of commerce and LSU’s satellite campus there to providing a down-home style of business that specifically caters to the area’s rural population and small businesses. Essentially, it’s everything the big banks are not.
“If you look at these small, rural communities like Kaplan or Gueydan, if you take away the community banks there, they won’t have a bank anymore,” says Donnie Landry, president and CEO of Tri-Parish Bank. “And once they’re gone, where will these people from the rural communities go for one-on-one banking? Sure, they can still do it online, but they’ll lose that personal assistance. Think of the elderly, they’re so conditioned on how they do their banking: in person, they still want their check, still want to stand in line.”
But it goes even deeper than that.
Community banks have the ability to work with people in ways the big corporate banks wouldn’t even dream of. Case in point: home mortgages and business loans.
“We don’t have scoring matrixes on credit,” explains Landry. “So we’re able to work with people; generally we know these people or their families. Say you have a credit score of 610, well, we can approve some of these, it just takes a little human creativity, especially when it’s in that gray area between 610 to 660; whereas in a city like Lafayette, you either fit in the credit matrix box or you don’t.”
That flexibility also includes the ability to work with people on their repayment of a loan.
“We collect our own loans, while the larger banks will have a centralized department for that,” says Landry. “Our loan officers are going in and seeing people they’ve known and worked with for 20 to 25 years instead of a telemarketer who’s just looking for a payment, which means we’re able to work with our customers in ways the big banks won’t.”
So what’s fueling the downward trend in community banking?
According to Brent Vidrine, president and CEO of the Bank of Sunset, it’s directly tied to the regulations spawned from the 2008 meltdown.
“Talk about unintended consequences,” Vidrine tells ABiz. “Community banks didn’t cause the Wall Street debacle of 2007 and ’08, but we have to comply with all the regulations that came from it, and it’s proven very burdensome cost-wise.”
Largely, the result of all the federal banking regulations to come from the Great Recession has come in the form of manpower requirements, which translates into must-have positions like multiple compliance officers to meet the demands of the Bank Secrecy Act. Federal requirements are also causing IT departments to swell at banks both big and small. Paperwork has also turned mountainous, and it continues to grow thanks to the Consumer Financial Protection Bureau.
“CFPB’s driving goal is to make it easier for the consumer, but in reality they’re not,” explains Tri-Parish’s Landry. “There are so many restrictions now on what a qualified mortgage is, especially if you’re in a rural market. There are so many new rules that the discussion among small banks now is about getting out of the mortgage business altogether. For example, if all I’m doing is 12 mortgages in my little community, I have to decide if it’s in my best interest to go ahead and hire the additional compliance officers or just refer the business to someone else. You know, sometimes it may seem like we’re crying about all the new regulations, but our regulations affect the individual in the community as well, and ultimately we’re just trying to offer as seamless and painless an experience as we can to our customers.”
For the Bank of Sunset, the increased regs have translated into an additional annual cost of about $100,000. “For a bank our size, depending on how you look at it, just adding that is about 8 or 9 percent of our net profit annually, just from salary and benefits, and it doesn’t count all the existing people employed in that area.”
The solution?
“There’s some pretty heavy lobbying going on, and hopefully this year we’ll get bits and pieces of some relief,” says Vidrine. “There’s a lot of legislation right now, and the small banking community is trying to get exemptions from these things. We’ve gotten a few, but need more. We’re just pushing the button harder and harder.”
For Landry, surviving the increased regulatory environment means adaptation and growth. He says part of Tri-Parish Bank’s strategy for 2015 involves a small expansion planned for the end of the year in the burgeoning city of Broussard.
“Insurance will go up every year. The regulatory environment goes up every year. The technology side as well; it’s ever-changing; what you bought two years ago you’re already having to replace,” explains Landry. “Basically, our costs will never stay the same, so staying a certain size is really not an option. And that’s no matter the industry; you can’t stand still — you’ll just get run over.”