Community banks zero in on service, local lending

Shore United Bank in Camden, Delaware. PHOTO BY ERIC CROSSAN

By Christine Facciolo
Special to Delaware Business Times

Community banks gained favor when megabanks got the blame for the Recession of 2008. That led to the creation of Bank Transfer Day, which encouraged patrons of the largest banks to take their business to community banks. But what exactly makes a community bank?

The simplest way to define a community bank is by size. But even here there is no set rule. The FDIC cites past studies that have applied thresholds of $1 billion and $10 billion in assets. But the agency cautions that the characteristics associated with a community bank are only loosely correlated with size. In other words, there are some smaller institutions that should not be considered community banks while there are larger banks that can be considered community banks. Smaller banks that would not fit the definition include credit card specialists, industrial loan companies and trust companies.

The Independent Independent Community Bankers of America defines a community bank more in terms of mission rather than size but generally views a community bank as being one with less than $50 billion in assets.

“We don’t try to define it [according to size] because it’s hard,” said Chris Cole, the association’s executive vice president and senior regulatory counsel. “We just say it’s locally run, and the thrust is serving the communities near its physical office, including adjacent states.”

Delaware’s five community banks range in size from WSFS, with $7.2 billion in assets and operates 76 offices, to Community Bank in Lewes, with $200 million in assets and two offices. In addition, three Maryland-based banks — Bank of Delmarva, Shore United and Calvin B. Taylor — maintain branch locations in some
of the smaller communities of Sussex County.

Regardless of size, Delaware’s community banks offer a full range of financial services, including rapid loan decisions, and, more importantly, the personal attention that small business owners and individual clients cannot obtain from giant national and international banks.

“I think the secret sauce is they understand their customers’ needs and how to best meet those needs,” said Sarah Long, president/CEO and treasurer of the Delaware Bankers Association. “They not only serve their communities, they are part of their communities.”

Community banks control just $668 billion of the nation’s $13.3 trillion in assets, yet they have a disproportionate impact on the economy. “More than half of the small business lending in the country is done by community banks,” said Cole. “And small business accounts for most of the job creation in the country.”

WSFS is the oldest and largest community bank in Delaware. It operates 77 offices throughout Delaware, Pennsylvania, Virginia and Nevada, providing services such as commercial and retail banking, cash management and trust and wealth management. With more than $4 billion in assets, WSFS is eight times larger than Artisans’ Bank, the next largest community bank in Delaware with assets of about $500 million.

WSFS claims a 21.4 percent share of the banking market in Delaware, putting it right behind M&T at nearly 23 percent and ahead of PNC with 20.9 percent.

Critics argue that given its scope and size, the bank may have outgrown its role as a community bank. But the company maintains that being a community bank is a matter of philosophy rather than size, and that its growth has improved its ability to serve the community.

“I think it gives us more dollars to spread out throughout the community,” said Richard M. Wright, executive vice president and chief retail banking officer at WSFS. “I would say that our ability to give back to the community is a reciprocal thing: We do better when the community does better, and the community does better when we do better.”

Wright noted that last year WSFS made about $100 million worth of small business loans, with the average cost of less than $100,000 per loan. “The majority of those loans were in Delaware,” he said. He also notes that the bank has relationships with more than half the people in the state.

Maintaining that level of service to the community was the rationale for the bank’s acquisition last August of Philadelphia-based Beneficial Bancorp Inc. That acquisition, which is expected to close in the first quarter of this year, will create the largest and oldest locally headquartered community bank in the Delaware Valley, with approximately $13 billion in assets.

“We want to remain independent and we want to ensure that the next generation has something to grow and invest, and we said this is the time to do this,” he said.

Community Bank of Delaware founder Alex Pires. PHOTO BY MARIA DEFORREST

At the other end of the asset spectrum and the state is Community Bank headquartered in Lewes with a branch in Rehoboth Beach. CEO and founder Alexander J. Pires Jr. and a group of local business owners founded the bank in 2006 in reaction to the dwindling number of small banks in America.

Pires, a lawyer and businessman, developed a love for banking when he managed the Federal Justice Credit Union, which serves the U.S. Department of Justice employees and other federal law-enforcement personnel. Indeed, of all the businesses he’s been involved in — and they range from hotels to entertainment to franchises — he finds banking the most enjoyable and rewarding.

Pires credits his bank’s success to a steady-as-you-go approach coupled with a sense of loyalty and fairness. The bank just passed the $200 million mark in assets, yet he is in no hurry to hit the “magic milestone” of $1 billion. “Last year I got seven or eight offers to sell the bank,” he said. “I’m committed to the employees. This is their career. Why would I work this hard to build something just to give it to somebody and have them take the sign down?”

Pires won’t do payday loans or any other type of high-interest speculative lending. What he will do are small business loans, home loans of any size and personal loans for people coping with life’s challenges. “I can do anything for you that a big bank can do, except I can do it in a more personal way,” he said. “We go to people’s businesses. We’re like the doctors in rural areas. We’re still doing house calls.”

While consolidation among banks will continue, they will survive and remain viable, experts say. Cole notes that 2018 was a very good year for the bottom line and that the community bank is holding its own.

Still, challenges remain, the biggest of which are keeping up with technology and complying with regulation. Both require money and smaller banks are at a definite disadvantage vis-à-vis their larger counterparts.

Those expenses can drive consolidation, said Cole.

Community banks got some regulatory relief last year with the passage of a bill that loosened regulations on banks with assets of $50 billion or less. “It rolled back some of the stricter regulations of Dodd-Frank,” said Cole. “It wasn’t dramatic, but it did help.”

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