Credit Officers Discuss Challenges to Community Banking

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The Orange County Chapter of the Risk Management Association (OC RMA) held a panel discussion featuring credit officers of three local community banks at the Pacific Club in Newport Beach on May 29. Panel participants included Anne Williams of California United Bank, Bob Sullivan of First Bank and Stephanie Locker of Independence Bank. Steven Casselberry of Michelman & Robinson moderated. White Nelson Diehl Evans LLP is a proud sponsor of the OC RMA, and assists businesses in creating quality financial statements to support banking and lending requirements.

The panel discussed a wide range of issues related to community banking, including remaining competitive, improving profitability, seeking consolidation with other banks, avoiding operational risk, finding niche service areas and dealing with regulators.

Regarding profitability, Williams noted that operating in the current business environment provided banks with many challenges.

“The market is extremely competitive,” she said. “The low interest rate environment continues to be a big challenge.” She said California United Bank stressed maintaining strong underwriting standards in order to ensure credit quality; the bank also was looking at other revenue-producing ideas.

Locker agreed. She noted, “We must carefully allocate the bank’s services that were previously free.”

Sullivan said at First Bank the focus was on growth without lending mistakes. He explained, “This economy is not growing, and there’s pressure from every direction. We cannot make mistakes on our loans.”

Williams touched on new government bank regulations, specifically mentioning Dodd-Frank. The challenges in following the new regulations prompted California United to drop out of the traditional 1st trust deed residential lending business. She said, “The regulatory environment today has resulted in very high compliance costs for all.”

Regulators also make it difficult for community banks, Locker said, and “we don’t see them loosening requirements any time soon.” Consolidation is inevitable, Sullivan believes, as there is limited growth in the number of loans offered and banks will be forced to merge to increase their assets and services offered.

An increasing risk to community banks is wire fraud, noted Williams. With developments in and reliance on technology, crafty, tech-savvy thieves will be better able to steal banking information and assets. An email from a banker or client could be faked in an effort to acquire sensitive information; the banks were taking significant security steps to reduce the risk.

In the end, what sets community banks apart from larger competitors was personal relationships and responsiveness to clients’ needs, the group agreed. Locker said, “If we can stress these attributes, we can win clients’ business every time.”

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