ABA Banking Journal - May/June 2016 - (Page 42)
> CEO ROUNDTABLE
Small Business: A Competitive
Edge for Community Banks
Community banks have historically been leaders in providing credit to small
businesses. Several bank CEOs offer ideas for staying competitive and
navigating challenges in changing times.
BY EVAN SPARKS
ACCORDING TO HARVARD'S Kennedy School, community banks
account for more than half of small business loan volume and nearly half
of commercial real estate lending. It's not an exaggeration to say that the
health of hometown economies depends on having healthy community
banks engaged in robust, properly underwritten small business loans.
Those community banks face many
challenges, from growing nonbank
competition to a difficult economic
environment that drives looser
underwriting standards. But their CEOs
are building strategies for success that
leverage community banks' unique
strengths to maintain their leadership in
the small business lending franchise.
While community banks have
historically been a dominant player
in small business, CEOs report rising
and aggressive competition from larger
banks and a variety of other lenders.
"There's a new phenomenon that
we're seeing in our market, and that
is that the very largest banks have
moved their threshold down," says
Charie Zanck, CEO of the $478 million
American Community Bank & Trust
in Woodstock, Ill. "They're starting to
enter the community banking space
in small business lending and looking
at much smaller companies."
The Farm Credit System is also
aggressive. Due to its tax-advantaged
status, "there's no way we can compete
ABA BANKING JOURNAL | MAY/JUNE 2016
on price," says Susan Black, whose
bank-Pinnacle Bank, a $230 million
institution in California's Santa Clara
Valley-does robust business with
wineries. "If Farm Credit is in the mix,
we're not going to get the deal."
For Shaun Burke, president and CEO
of the $628 million Guaranty Bank
in Springfield, Mo., credit unions are
the big competitor despite statutory
limits on the business lending most
CUs can engage it. "They'll do up
to a million dollars," he says, "and
it's at margins that there's no way
we can accommodate, so we lose
some transactions to those guys.
But if it's a big enough relationship,
we end up getting them back
because they can't service it the way
we do as a community bank."
Service is key to winning small
business, adds Curtis Davidson, CEO
of First National Bank & Trust Co., a
$514 million bank in Ardmore, Okla.
While the FCS dominates land deals
in his rural Oklahoma market, "we can
beat them on service there, so that's
one niche that we've been able to get
for ourselves." Burke and Davidson's
point is echoed by the recent Small
Business Credit Survey released by
several Federal Reserve Banks, which
revealed that 75 percent of community
banks' small business borrowers are
satisfied, versus only 56 percent for
credit union business borrowers.
Small Business Administration
programs also help community
banks serve their customers.
Black's bank uses SBA to make
loans to entrepreneurs. "That's
the only way we can look at pro
forma income," she says. "We love
SBA. We use it as a complement
for our clients, for the services that
we offer. All of our relationship
managers are trained on SBA."
Burke agrees. "Once we get the SBA
guarantees, it allows us to take a risk
that we wouldn't otherwise take in
this environment," he says. "But also,
you could price those loans up if you
got the expertise. So as the economy
improves, we see that there's a
tremendous opportunity to pick up."
Community banks' edge
in attracting, retaining
Attracting and retaining talented
commercial lenders can be a challenge,
CEOs say, but community banks offer
some key benefits. Burke has doubled
the size of his business lending team
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