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          Survey: Community Banks See                            volume was up 17 percent from 2015, with construction loans

          Decline in Small Business Loan                         up 20 percent. Community banks most commonly identified
                                                                 fellow community banks as their biggest competitor for small
          Volume                                                 business loans. However, 10 percent expect credit unions to be
                                                                 major competitors in the future, while 7 percent said the same
          While small business
          lending remains the                                    about nonbank fintech firms.
          core of the community                                  Small business loans drove adoption of  other  products with
          banking business – with                                community  banks.  Nearly  95  percent  of  community  banks
          98 percent of banks with                               always or usually provided deposit services to small business
          less than $10 billion in                               borrowers, while 38 percent provided cash management.
          assets offering small business loans – larger banks edged their   However, bankers rarely leveraged their lending relationships
          smaller peers in total origination volume, according to a survey   to provide value-added consulting or advice. For example, just
          released by the Federal Reserve and the Conference of State   12 percent usually or always offered succession planning advice,
          Bank Supervisors. Small business lending at community banks   and 11 percent provided wealth management advice.
          fell by 2.2 percent to $269 billion in 2016. Banks with more   To view the survey visit: https://www.communitybanking.
          than $10 billion in assets saw their small business lending grow   org/~/media/files/CB21pub_2017_BOOK_web.pdf
          by 5.1 percent from 2015 to 2016, reaching $284 billion. In
          previous years, community banks had higher overall origination
          volumes.                                               Survey: Growth of Community
                                                                 Bank Compliance Costs
          Small business loans also declined as a percentage of community
          banks’ portfolios, dipping from 16.6 percent to 15.9 percent.   Driving M&A
          Meanwhile, community banks saw growth in commercial real   Compliance costs continue to grow dramatically at community
          estate dramatically outpace increases in small business C&I   banks, according a recent Federal Reserve/Conference of State
          loans. Banks participating in the survey reported that CRE loan
                                                                 Bank Supervisors (CSBS) survey. Compliance accounted for a
                                                                 greater share of personnel, data processing, legal, accounting,
                                                                 and consulting costs in 2016. The total implied dollar cost of
                                                                 compliance for all community banks rose 8.7 percent to $5.4
                                                                 billion – representing nearly a quarter of community banks’ net
                                                                 income. Compliance costs were up more than 20 percent in the
                                                                 two-year period from 2014 to 2016.
                                                                 Key drivers of compliance costs were the Bank Secrecy Act,
                                                                 accounting for 22 percent of compliance expenses, and the
                                                                 TILA-RESPA integrated disclosures, accounting for 21 percent.
                                                                 (TRID continued to weigh down mortgage lending in 2016;
                                                                 more than 40 percent said they were seeing a slower pace of
                                                                 business or delayed closings as a result of the rule.) Compliance
                                                                 costs are often a factor in community banks’ ability to achieve
                                                                 economies of scale, which in turn drove M&A activity in 2016.
                                                                 Nearly nine in 10 community banks that made a bid for another
                                                                 institution in 2017 said that economies of scale were important
                                                                 or very important, and seven in 10 banks that considered an
            Affordable Home Financing                            offer cited their own inability to maintain economies of scale.
                                                                 Getting a grip on growing regulatory costs was specifically cited
          FirstHome™ • HomeAccess • North Dakota Roots           by 85 percent of banks considering an offer as important or very
                                                                 To view the survey visit: https://www.communitybanking.

          •  800.292.8621

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